FCFS: Canary In A Goldmine?

Our original call pre-earnings on First Cash Financial Services (FCFS) was that it would take a hit on earnings due to falling gold prices and the influx of “we’ll buy your gold now” stores popping up all over the place. That was our consensus on the pawn space as a whole. FCFS managed to beat expectations for Q2, but after speaking directly with management, we’re still cautious about this name.

 

Management pushed back on our argument. Since we had some valid discourse, we’ve decided to outline the points they made on the call below:

 

  • Point 1: On the issue of gold, FCFS says it’s becoming a smaller portion of their business. US stores see gold for 60% of collateral, while Mexico only sees 20%. That’s significantly less than competitors in the pawn space like CSH and EZPW.
  • Point 2: There are two types of customers: those trying to just sell their gold and those who are using valuable items (i.e. family heirlooms, wedding rings) for collateral that they ultimately want back.
  • Point 3: FCFS is growing. From 2002 to 2Q12, they’ve gone from ~120 stores to 675 stores. The bottom line is that store growth has likely accounted for a larger portion of long-term revenue growth than we had assumed, which means that gold price tailwinds must have accounted for a smaller portion.

 

This quarter's results are consistent with our basic view on First Cash.  The company is a solid operator with strong growth prospects baked into existing store count from acquisitions and new store openings.  However, First Cash has significant gold exposure, though less than CSH and EZPW, and so long as gold prices are moving sideways to lower we think it will be hard for FCFS shares to hold their current level. 

 

 

FCFS: Canary In A Goldmine?  - FCFS earningsreview


Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more