When the directors of EZCORP (NASDAQ:EZPW) approved hundreds of thousands of restricted stock shares to its chairman and CEO, perhaps we should have had an inkling that performance for the pawnshop operator was improving.
In addition to the more than 300 pawnshops the company operates under the EZPAWN name, it also serves as a short-term loan operator -- often referred to as a payday lender -- in more than 330 EZMONEY stores. The company raised earnings expectations in the fourth quarter by 40% because, among other things, it was able to open 46 new stores without any drag. It began churning out profits with lower costs than expected.
While pawnshops have always had something of an unsavory flavor about them, payday lenders have become increasingly unliked among politicians and so-called consumer-interest groups. Industry leader Advance America (NYSE:AEA) has even incurred the wrath of Pennsylvania regulators for figuring out a way to do business even though the Keystone State would prefer to drive its type of company out altogether. The interest groups, banks, politicians, and regulators chafe at what they consider exorbitant interest rates charged for small, short-term loans. EZCORP has so far avoided a similar fate by limiting its reach to 13 states, primarily in the South.
For the fourth quarter, EZCORP expects to report earnings in the range of $0.61 to $0.64 a share compared with its prior forecast of $0.43 to $0.46, and for the full year it expects to earn between $2.05 and $2.08 per share, nearly double the $1.09 it earned in 2005. The company also expects to grow profits by 17% in 2007, earning $2.45 per share, whereas analysts had been expecting just $2.32 per stub.
Stock prices among all payday lenders increased on EZCORP's news, but the 17% increase at EZCORP means it is no longer undervalued compared with its peers, as it once was. As the chart below shows, on a trailing basis, the pawnshop operator was among the lowest valued in the industry on a P/E basis and in the middle of the pack on a forward valuation.
| Company | TTM P/E | Fwd. P/E |
|---|---|---|
| Advance America | 18.6 | 13.6 |
| EZCORP | 21.3 | 15.7 |
|
Cash America
(NYSE:CSH) | 22.5 | 15.8 |
|
First Cash Financial
(NASDAQ:FCFS) | 24.3 | 16.3 |
|
QC Holdings
(NASDAQ:QCCO) | 51.8 | 17.1 |
|
Dollar Financial
(NASDAQ:DLLR) | 59.4 | 11.8 |
However, the new estimates now put it firmly ahead of the competition, making it perhaps not the value for investors it was just last Friday, even though it's still a little below the 52-week high it hit back in July. Over the course of the year, EZCORP has more than tripled in value. The industry has come under pressure from various quarters, and some states are seeking to limit or ban payday lenders altogether, but the company has pretty much insulated itself from those vagaries by carefully choosing the states it does business in.
Yet there are some concerns for investors, as Foolish contributor Robert Walberg noted back in February: the lack of an independent board of directors, a single shareholder who owns all of the class B voting stock, and other industry concerns. For the fourth quarter, though, EZCORP made things look as easy as pie. Or, as my daughter once told me, it's easy-peasy, lemon-squeezy.
It's a simple as A-B-C, 1-2-3 with these related Foolish articles:
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. The Motley Fool has a disclosure policy.
