By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 6/23/11 Sign up for free Cabot Wealth Advisory e-newsletter
EZCorp (EZPW) operates 500 pawnshops plus 500 short-term consumer loan stores in the U.S., Mexico and Canada. The company provides convenient, short-term lending to customers, secured by their personal property including jewelry, electronics or other personal property. Pay-day loans are offered at high interest rates for very short periods of time.
Many banks are not lending to consumers in need of loans, and high unemployment is forcing many people to seek pawn loans. I expect banks to maintain tight lending conditions for another two years or more. High unemployment and under-employment also could linger into the foreseeable future.
EZPW is aggressively opening new stores and acquiring small businesses to meet demand and to gain market share in North America despite new regulations aimed at curbing exorbitant lending rates. EZCorp is complying with the strict new regulations and also is unveiling innovative services, while some of its competitors charge exorbitant lending rates. EZCorp's above-board methods provide a competitive advantage.
The company's sales rose 21% and EPS advanced 31% during the quarter ended 3/31/11, which was better than expected. Same-store revenue increased an impressive 12%. I forecast sales to increase 13% and earnings per share to rise 19% during the next 12-month period. Growth in the U.S., Canada and Mexico should increase at a solid pace, and the company's expansion into Australia, the United Kingdom and Europe is producing better than expected results.
EZCorp's balance sheet is very strong with minimal debt and plenty of cash to fund future expansion. The company does not pay a dividend and may not for some time. EZPW's shares are medium risk and offer excellent value at 11.3 times my forward 12-month EPS estimate of 2.75.
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J. Royden Ward
Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.