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
