In an effort to expand in Texas,
First Cash Financial Services Inc.
) announced the acquisition of the 'Valu + Pawn' brand for an
all-cash payment of $70 million. Most of the deal value will be
funded through the company's revolving credit facility.
First Cash primarily deals in lending secured money to small
customers against pawns or pledged personal property in the form
of jewelry, electronics, tools and other merchandise. Including
the 19 stores acquired from this brand, First Cash now owns
stores in over 866 locations in 12 states of the U.S. and 24
states of Mexico. The company's store locations have grown about
17% since Jun 2012.
The acquisition is expected to enhance First Cash's market
position in the rapidly growing pawn markets of Houston, Dallas
and Fort Worth areas of Texas. Valu + Pawn brand also enjoys high
profitability in its areas of operations, which is reflected by
its significantly escalated pawn receivable balances and
operating cash flows. Subsequently, the deal will likely be
accretive to earnings from 2014.
Market Reacts to Low Guidance
Despite the valued acquisition, the shares of First Cash
toppled about 10% to close at $49.71 in the after-hours trading
session yesterday. Additionally, the stock plummeted one notch to
a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold) on Jun 25.
The market reaction primarily reflects First Cash's
announcement of a trimmed growth outlook for 2013 based on
fluctuations in gold prices and the Mexican peso, the commodities
that are a significant part of the collateral base. Consequently,
the company reduced its earnings per share expectation within
$2.75-2.90 for full-year 2013, from the prior range at the lower
end of $3.10-3.24. The prior band represented growth of 14-19%,
which is now now down to 1-7%.
Additionally, First Cash projects earnings of 56-59 cents per
share in the second quarter of 2013. This excludes 4 cents per
share related to one-time acquisition expenses, including which
earnings should be within 52-55 cents a share. The company is
scheduled to release its second quarter 2013 financial results
before the bell on Jul 17, 2013.
While the lending against gold as collateral contributes about
15% to First Cash's total collateral base, management remains
optimistic of the long-term opportunities in the pawn industry,
which has survived several economic fluctuations with resilience.
Despite the expected economic volatility in the upcoming
quarters, we believe that the company's core pawn lending and
retail operations have growth potential in the long run.
Other Stocks to Consider
While we prefer to avoid First Cash until further signs of
improvement, other outperformers including
Tractor Supply Co.
KAR Auction Services Inc.
) are worth a look. All three stocks carry a Zacks Rank #2
CABELAS INC (CAB): Free Stock Analysis Report
FIRST CASH FINL (FCFS): Free Stock Analysis
KAR AUCTION SVC (KAR): Free Stock Analysis
TRACTOR SUPPLY (TSCO): Free Stock Analysis
To read this article on Zacks.com click here.