Thursday, May 9, 2019

A Current AIM Small Cap Equity Holding: First Cash, Inc. (FCFS, $97.82): “Fast Cash with FirstCash” By: Matthew Prinske, AIM Student at Marquette University


 Matthew Prinske (FCFS, $97.82): “Fast Cash with FirstCash”
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