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Tickers in this Article: CSH
During tough times many Americans are forced to resort to pawn loans to pay their bills. A pawn broker is probably not the first choice, but often it's the only choice. As the economy sputters, there's one pawnshop operator that deserves particular attention given its recent upbeat Q1 forecast: Cash America (NYSE:CSH).

New Guidance Very Positive
When it comes to earnings in this environment, companies need to under promise and over deliver, lest they face the wrath of an investor scorned. That's what Cash America has done.

Just two months ago in conjunction with its Q4 earnings, management predicted earnings of 70-75 cents a share in the first quarter ending March 31. Now Cash America revised this guidance and now expects to earn 80-82 cents per share. Note: it earned only 63 cents in the comparable period last year. The reasons for the upbeat forecast were greater revenue growth and lower-than-expected losses on its cash advance loan product - in other words its "payday advance". (Be smart, buy the stock, not the product; to learn more, see Payday Loans Don't Pay.)

I think Cash America probably knew things were looking up even when it made its original, low-ball, predictions. The company was already a month into the quarter, but probably decided it was best to play it safe.

This was a good move. It gives the company a greater amount of "(Wall) Street cred" with analysts; there's something to be said for making a covering analyst look smart. It's also good news because it suggests the full-year earnings guidance of $2.85-3.05 per share may also be conservative.

(Only) Alternative Lending
Pawn lending and payday loans are often a last resort. You don't head to the bank when you need $200 for groceries, so as the economy slows and people begin to max out their credit cards it only makes sense that alternative loan companies will do a brisk business. The recent numbers from the company support this.

In the tables at the bottom of the Q4 2007 press release (pdf), it shows Cash America had an average annualized merchandise turnover of 2.9 times in Q4, which is north of the 2.8 times it reported in last year's fourth quarter and the 2.7 times it reported for the full year. In other words Cash America is consistently liquidating merchandise. The tables also reveal that Cash America is doing a fare amount of lending through the internet, which is good because this doesn't involve all of the costs and hassles of a storefront.

Bottom Line
Cash America is pawnshop that deserves more attention than it's getting. The company's conservative initial guidance shows a fair amount of Street savvy, and let's face it, as the economy slows, alternative lending could become a growth industry.

To learn more, check out Recession: What Does It Mean To Investors?

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