Don't Sleep on EZCorp

EZCORP, Inc. (EZPW) is one of the Masters favorite stocks. When the largest pawn shop operator in the United States by market capitalization guides lower for 2009, you know we are in trouble. If EZCORP is under pressure, what does that say about the American economy? EZCORP shares fell 15% on Friday, but that knee jerk reaction may hurt shareholders in the end.

EZCORP was formed with sixteen pawn shops in 1989. The company operates over 670 storefronts in 13 states and Mexico under the EZPAWN, EZMONEY Loan Services, EZMONEY Payday Loans and EZ Loan Services brand names.

The company holds approximately 29 percent of the outstanding shares of Albemarle & Bond Holdings, plc (A&B). A & B operates over 75 locations in the United Kingdom offering pawn loans, payday loans, check cashing, and retail jewelry.

Shares of EZCORP are way down today after they cut their profit outlook for the third quarter and full year, citing lower-than-expected demand for its loan products and previously owned merchandise in the United States.

The company lowered its third-quarter earnings view to 29 cents to 31 cents a share, from its earlier forecast of about 34 cents a share.

For the full-year, it now expects to earn $1.40 to $1.44 a share, down from its previous outlook of $1.50 to $1.52 a share.

As Trader Mark pointed out this morning:

When pawn shops are suffering, either (a) the economy is accelerating into a green shoot nirvana to such a degree their services are no longer needed.... or (b) things are deteriorating to the point that even these guys - who should benefit from hard times - are stagnating. I am sure you can determine where I stand... but I talk from Main Street.

If it was just the cash advance business I'd say, less people are employed so less people have checks to advance... but since it's both business lines, it takes on a darker tone.

With a reaction like we are having this morning with EZCORP shares taking a dive, this is not a stock to buy on the dip. For now EZCORP shares could turn into a falling knive and what's the point of thowing more money into the fire? What could save this stock right now is if the analysts covering EZPW go to bat to for them, but at this moment, are you willing to take that gamble?

Whitney...

Hell to the No. Play it smart.

Long-term, even a week or so from now after the Media lets go of this story, EZCORP could be a stock that warrants a long position to be taken. Today's selling is a kick in the pants reaction, already at 1 PM EST volume has hit 2,162,425, normally only 500,000 EZPW shares trade hands. Its as if investors didn't hear that part that the company is still going to be raking in the money, just not as much as expected or previously announced to the Street. Take a que from the Options activity on EZPW, its not really moving, Puts or Calls, its the day traders that are having a field day today.

Commenting on the revised earnings expectations, President and Chief Executive Officer, Joe Rotunda, stated:

"As we have moved through our June quarter, we have seen lower than anticipated levels of demand in our U.S. operations for our loan products and previously owned merchandise. The continuing depressed economic environment is having an effect on our business that is not consistent with traditional or expected patterns. The revenue impact of these lower levels of demand has caused us to be more conservative in our earnings expectations for the June quarter and the balance of the year. We are fortunate that during these economic times we continue to have earnings growth, strong cash flows and a sound balance sheet."

Fellow Masters, let the dust settle then take a second look at EZPW, should shares get in the $9 price range, its a Buy, be patient. Its a bit disturbing that this huge operator of Pawn Shops isn't going to do as well as they thought, thus don't sell the farm and buy EZCORP on this 15% decline. The analysts will weigh in on today's events, expect some target price reductions and check back in a week. However don't wait forever, this could be a classic bounce play with investors bailing today only to feel regret in a few days later wishing they didn't give into panic selling.

Disclosure: No positions in EZPW.

Comments

[Mad Hedge F...:]

x

Jun 15 09:49 AM

[Larry Meyers:]

I disagree completely. It's a solid buy and still cheap here at $12.

Jul 23 04:55 PM