Wednesday, May 15, 2019

A Current AIM Small Cap Equity Holding: FirstCash, Inc. (FCFS, $100.25): “Should First Cash be First Choice?” By: James F. Oddo, AIM Student at Marquette University


FirstCash, Inc. (FCFS, $100.25): “Should First Cash be First Choice?”
By: James F. Oddo, AIM Student at Marquette University


Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

FirstCash (NASDAQ:FCFS) engages in operating retail-based pawn stores. It operates through following segments: U.S. operations and Latin America operations. The U. S. Operations segment includes all pawn and consumer loan operations in the U. S. The Latin America Operations segment consists of all pawn and consumer loan operations in Latin America, which currently includes operations in Mexico, Guatemala and El Salvador. The firm also buys and sells electronics, jewelry, tools, appliances, sporting goods, and musical instruments.

FCFS reported 1Q19 adj. EPS of $0.97, which beat estimates of $0.87 by Jefferies. The quarter was positive as revenues, margins, and PLO balances all beat expectations.

Management increased 2019 guidance at the bottom and top end by $0.05 given momentum/store growth.

Long term core growth metrics remain on track given revamped Latin America growth while the US continues to migrate back towards flat year over year growth.

•SS Loan balances declined 3% in the US segment, remaining under pressure despite the lapping of the more difficult comps tied to the migration of the acquired CSH stores.

Key points:

FirstCash is guiding to an adjusted EPS range of $3.80 to $4.00 versus the previous range of $3.75 to $3.95. Guidance continues to include a 25 bps increase from US unsecured lending 10 bps increase from FX and a higher tax rate. Good momentum in the quarter in Latin America combined with recent organic and purchased store growth, enabled the guidance increase. FCFS acquired 128 stores in 1Q19 (118 in Mexico and 10 in TX) and opened 36 new stores in Latin America.

Total revenue from the international segment grew 25 bps year over year, influenced by 32% year over year increase in pawn loan fees and 19% year over year increase in merchandise sales. Latin American pawn receivables grew 38% year over year, well ahead of market estimates. Latin American same-store pawn revenues increase by 400 bps. Latin American growth has re-accelerated following loan to value alterations in mid-2018, while the addition of 154 new/acquired stores in the quarter gives FCFS even more room for growth.

What has the stock done lately?

Year to date, FirstCash as seen growth of 35% and reported an adj. EPS of $0.97. Top line revenues reported at $468M, while net revenues of $256M. All actual reports beat the street estimates. Consolidated margins of 33.6% were 70 bps ahead of the forecast. Latin American operations produced a modest revenue.

Past Year Performance: 

This past year, FCFS was up 13.09%, even with the correction period in Q4 2018. EPS was up from 2.74 (2017) to 3.53 (2018). Price to earning went from 24.6 to 20.5 and sales stayed the same. It is fair to say that FCFS fundamentally performed well in the past year.


Source: FactSet

My Takeaway
FirstCash is a growth and momentum powerhouse. As for a value standpoint, FCFS’s ratios are not as strong. 2018’s PB is at 2.39, which is above the industry average. However, their 5 year average is 2.42, so they are not unfamiliar with being profitable with a high PB. The same applies for their PE ratio. The 2018 ROE was at 10.97, which is a little on the low side, but not awful. Overall, FirstCash is not a value company, but absolutely an opportunity for growth.



Source: FactSet

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