Pawnshop operator and payday lender EZCORP (NASDAQ:EZPW) will report first-quarter 2007 financial results on Tuesday, Jan. 23.

What analysts say:

  • Buy, sell, or waffle? Four analysts covering EZCORP say don't hock everything to buy this stock; they all rate it a hold.
  • Revenues. Revenues are expected to grow 13% to $85.5 million over the $75.8 million the company posted a year ago.
  • Earnings. Profits are forecast to jump 17% higher in the quarter, coming in at $0.20 per share versus the $0.17 they put up last time out.

What management says:
Payday loans are going to continue to become a much larger part of EZCORP's future as 100 new EZ Money stores will be opened this year. In 2006, that expansion of the payday loan concept -- EZCORP's "signature loans" -- caused revenues to nearly double to $7.7 million, while pawn shops, which haven't had a single new store added since 2000 (though they got a few through acquisition), grew 17% last year.

President and CEO Joe Rotunda noted that the company opened 46 new payday loan shops in the fourth quarter alone, marking it as the third consecutive year of 100 or more new store openings. He plans to open a few more stores in Mexico, a market that was already heavily using the Texas border stores. The company was forecasting per share earnings of $0.58 to $0.60 for the first quarter, but that was before the three-for-one stock split the board authorized in November, so analysts are on board for EZCORP to hit the high end of their range.

What management does:
As EZCORP continues to expand into payday lending, the costs associated with running those shops continue to drop in comparison to its pawn shops, which require half the personnel the latter does. Moreover, with pawn shops largely dependent upon the price of gold to determine both its profits and its costs, the easy money might be over there for awhile. Profits have been fat -- gross margins on pawn sales grew from 38.5% in 2004 to 39.8% in 2006 -- but if inflationary pressures subside as oil prices stabilize, we may see precious metals like gold come down as well.

Margin %

09/05

12/05

09/06

06/06

09/06

Gross

58.7

58.4

58.9

58.8

60.3

Op.

98.0

10.5

12.0

12.9

14.8

Net

58.0

6.2

7.2

7.9

9.3
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:
Better returns at higher rates with fewer expenses make it easy to see why EZCORP is turning to payday lending, even if it has to comply with the full set of federal and state regulations that have been imposed on the industry in the past few years. With most of its operations centered in and around Texas, EZCORP is largely dependent upon the local economy, though it is branching out in the U.S. and now Mexico.

The easy money may already have been made in this stock. Its trailing P/E of 23 puts it in line with some of its closest competitors, but it's about double its historical average and well above the P/E of 16 the industry sports. However, if the subprime lending market is in as much trouble as analysts contend, then short-term lenders may see some opportunities for good growth yet.

Competitors:

  • First Cash Financial (NASDAQ:FCFS)
  • Cash America (NYSE:CSH)
  • Advance America (NYSE:AEA)
  • Dollar Financial (NASDAQ:DLLR)
  • QC Holdings (NASDAQ:QCCO)
  • CompuCredit (NASDAQ:CCRT)

Related Foolishness:

EZ Corp has earned a three-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 recommendation of Motley Fool Inside Value. A 30-day guest pass lets you see why the largest of all payday lenders was chosen as a winner.

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.