Foolish Forecast: EZCORP on Hold

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Pawnshop operator and payday lender EZCORP (Nasdaq: EZPW) will report second-quarter 2007 financial results on Tuesday, April 24.

What analysts say:

• Buy, sell, or waffle? Is analyst sentiment turning slightly bearish against EZCORP? Three of the four analysts now rate it a hold, with only one saying buy. That's better than last quarter, when all four said hold, but it marks a downward shift from last month, when two said buy.
• Revenue. Revenue, though, is expected to rise 14% to $90 million.
• Earnings. Profits are expected to jump 21% to $0.23 per share. That's at the top end of management's guidance.

What management says:
President and CEO Joe Rotunda continues to look for complementary avenues for expanding the pawnshop side of the ledger without constructing any new facilities. EZCORP just announced it will acquire the operations of Jumping Jack Cash, the second-largest chain of pawnshops in Colorado -- second only to EZCORP's 24 EZPAWN stores. That makes it the dominant pawnshop operator in Colorado, while it also has sizeable payday lending activities there.

Although the expansion makes sense in that EZCORP knows the market well, it continues to highlight the fact that the company is still concentrated in just a handful of states. Two-thirds of its operations are in Texas, with the next largest concentration in Colorado. The rest are scattered around 10 more states.

What management does:
The price of gold is still a primary determinant of the margins EZCORP will realize in its pawn operations, since jewelry -- chiefly made of gold -- is ultimately sold if the loan is defaulted. As gold has soared in value, EZCORP's margins have widened commensurately. Since the beginning of the year, the price of gold has inched upward, so EZCORP may see margins expand further this quarter.

Margin	12/05	03/06	06/06	09/06	12/06
Gross	58.5%	58.9%	58.8%	60.3%	60.5%
Operating	10.3%	11.8%	12.7%	14.8%	15.4%
Net	6.2%	7.2%	7.9%	9.3%	9.7%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
During a time of steadily increasing revenues and profits, EZCORP's stock has traded between $14 and $17 per share for the past six months. On a 2008 expected earnings basis, the market is valuing the pawnshop operator at a slight premium to competitors First Cash Financial (Nasdaq: FCFS), Advance America (NYSE: AEA), and Cash America (NYSE: CSH). The focused business expansion it has undertaken could warrant the premium, but investors may also want to wait for a discount.

EZCORP's business looks sound, its expansion plans continue apace, and profits seem likely to continue to grow. I'd only want to wait for a better time to buy into the stock so the analyst sentiment to "hold" may not be so far afield.

Related Foolishness:

• EZCORP Profits Easily
• Foolish Forecast: EZCORP's Expansion Plans
• Previewing 2007: EZCORP
• Foolish Fundamentals: Margins

EZCORP has earned a four-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock-rating service by joining today. It's free!

Advance America is a Motley Fool Inside Value recommendation.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.