On Apr 5, we downgraded our recommendation on
DFC Global Corp
) to Underperform from Neutral, following the announcement of a
lowered fiscal 2013 guidance. The Zacks Rank #5 (Strong Sell)
company expects to report lower fiscal third-quarter earnings
compared with the year-ago level.
DFC GLOBAL CORP (DLLR): Free Stock Analysis
EURONET WORLDWD (EEFT): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
SS&C TECHNOLOGS (SSNC): Free Stock Analysis
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Why the downgrade?
Following the news release, DFC Global witnessed sharp downward
estimate revisions. All 4 estimates for 2013 as well as for 2014
moved south. While the Zacks Consensus Estimate for 2013 slumped
29% to $1.71 over the last 7 days, the same for 2014 dropped 30%
to $2.00 over the same period.
Cause for Concern
DFC Global trimmed the fiscal 2013 earnings expectation to $1.70
to $1.80 per share from $2.35 to $2.45 per share guided earlier.
Additionally, in the prelim result, DFC Global revealed that it
expects operating earnings between 20-24 cents for the third
quarter of fiscal 2013.
Moreover, the third-quarter prelim result of DFC Global is
substantially lower from 53 cents earned in the year-ago quarter.
The Zacks Consensus Estimate is at 22 cents, representing a
year-over-year decline of 59.4%.
Management also stated that due to new loan rollover limitations
(three loan rollovers per customer) several outstanding
short-term consumer loans in the United Kingdom became
immediately due, resulting in a temporary 'credit crunch' for the
customers. As a result, the company is facing more loan defaults
in its UK business, which in turn weighs on the earnings. In
anticipation of the increasing number of loan defaults, DFC
Global constricted the lending-underwriting norms, which again is
weighing on loan growth in UK.
In addition, with increasing penetration of electronic banking
services into the check cashing and money transfer industry, fees
associated with check cashing has declined significantly over the
Also, DFC Global's operating expenses have been increasing over
the last few years, attributable to higher salaries and benefits,
provision for loans losses, occupancy costs, and cost of gold
purchased. The rise in expenses has restricted operating margin
expansion. If expenses continue to accelerate, operating
margin expansion will be hugely affected going forward.
Financial Services Providers That Warrant a Look
Among other financial service companies,
Euronet Worldwide Inc
SS&C Technologies Holdings, Inc
) carry a favorable Zacks Rank #1 (Strong Buy) and appear