On Sep 12, we downgraded
DFC Global Corp
) to Underperform from Neutral based on the company's dismal
fourth quarter and fiscal 2013 results.
Why the Downgrade?
Estimates for DFC Global witnessed sharp downward estimate
revisions after reporting disappointing fiscal fourth quarter and
2013 results on Aug 22. The Zacks Consensus Estimate for fiscal
2014 slumped 46% to $1.12 per share over the last 30 days as all
4 estimates moved south. For fiscal 2015, 1 of 4 estimates was
revised downward over the same time frame, sinking the Zacks
Consensus Estimate by 28% to $1.66 per share.
DFC Global's fourth quarter revenues lagged the Zacks Consensus
Estimate by 21%, though inched up 0.9% year over year.
Earnings for the quarter lagged the year-ago figure of 58 cents
per share by 15.5%. However, it surpassed the Zacks Consensus
Estimate by 4.3%.
With the Zacks Consensus Estimates for both 2014 and 2015 going
down, the company now has a Zacks Rank #5 (Strong Sell).
Cause for Concern
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, DCF Global is
facing more loan defaults in its U.K. business, which in turn
weighed on the earnings of the company.
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. With the transition to new loan
rollover limitations continuing, management expects to maintain
lower loan origination through the first half of fiscal 2014, to
lower the risk of higher loan defaults during the period. This
will eventually constrain growth.
Additionally, the company expects to incur expenses in the range
of $10-$15 million to support ongoing regulatory related
activities, including regulatory advisory costs, legal opinions
and analysis, and audit and regulatory compliance costs, in
The company derives a significant portion of its revenues from
fees associated with cashing payroll, government and personal
checks. Its contribution to top line has been declining due to
increasing penetration of electronic banking services into the
check cashing and money transfer industry.
Moreover, DFC Global's escalating expenses continue to take a
toll on margin expansion.
Stocks That Warrant a Look
While we advise to avoid DFC Global, financial service provider
FleetCor Technologies, Inc
) with Zacks Rank #1 (Strong Buy), and
SS&C Technologies Holdings, Inc
Financial Engines, Inc
) with Zacks Rank #2 (Buy), are worth considering.
DFC GLOBAL CORP (DLLR): Free Stock Analysis
FLEETCOR TECH (FLT): Free Stock Analysis
FINANCIAL ENGIN (FNGN): Free Stock Analysis
SS&C TECHNOLOGS (SSNC): Free Stock Analysis
To read this article on Zacks.com click here.