By:
Matthew Prinske, 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
• First Cash, Inc. (NASDAQ:FCFS) operates retail based pawn stores,
the company operate primarily in the United States and Latin America.
• FCFS has ticked
guidance up in their most recent earnings report after beating consensus
estimates by $0.09 over the consensus estimates of $0.90, spurred mostly by
growth in their Latin American markets.
• While FirstCash
continues to try to develop their Latin American market share their domestic
revenues saw a small decline of 3%.
• Management announced a
$0.25 dividend to be paid on May 31st which yields 1%, this was
coupled with stock buybacks at an average cost of $85.17 per share.
• FCFS reached its 52
week high of $100.43 just last week on April 26th, this came up
along with stronger earnings estimates, which may indicate that they can
surpass this ceiling.
Key
points:
FirstCash is expanding in emerging market, while losing
revenues at home. This shift to foreign
markets makes sense for pawn stores as the U.S. economy continues its growth.
As the United States begins to slow their growth, this counter-cyclical
industry should see some revenues growth domestically as well.
In their most recent
earnings report FirstCash increased estimates up by about $0.05 per share, and
announced a quarterly dividend. Stock
buybacks remain confirmed but still pending.
However, the company bought back those shares at a much lower cost ($85.17)
than what the current stock is trading for.
FirstCash pushed up
operating margin by 120 BPS over FY18, leading to a 113 BPS increase to their
return on equity. The firm is levered
with a Debt/Equity ratio of 44.83, marking a three year high.
FCFS is expecting to
bolster growth in their Latin American market, as domestic sales have begun to
erode. The Latin American market poses significant risks as governmental policy
and actions can be volatile in these locations.
What
has the stock done lately?
Since the dividend
announcement and management increasing guidance FCFS has traded near their 52
week high, peaking at their high of $100.43 on April 26th. Previous to their earnings release the stock
was trading up about 1.5% on the month.
The current high for this company does not seem like a flash in the pan
as their growth within Latin America is sustainable.
Past
Year Performance:
FCFS has increased in price about 12% over
the last year. The stock has been
volatile with big drops in July and in December. These drops eventually rallied especially
starting at the beginning of the year.
The stock has a 52 week low-high of $66.28-$100.43, with the high just
being reached last week.
Source:
FactSet
My
Takeaway:
FirstCash has seen large
earnings for estimates for Q1 2019, and continues to grow their Latin American
presence. This fact leads to investors
needing a larger return for their increased risk as opposed to domestic sales
growth. FCFS has compensated investors
through Dividends yielding 1% along with stock buybacks of $144 MM still
available. This stock has rose on strong earnings and increased guidance,
however the increase in Latin American operations brings about additional
risks.
Source:
FactSet
