Consumer Finance Sector Picks

Includes: DLLR, FCFS
by: The Wall Street Transcript

On September 10, The Wall Street Transcript interviewed John Hecht, Managing Director and Senior Research Analyst at JPM Securities LLC covering the consumer finance and specialty finance sectors. Key excerpts, including his sector picks, follow:

TWST: When you talk with investors, what's the interest level in the space at this point?

Mr. Hecht: I'd say the interest level is high. I think that the stock prices, having fallen due to concerns associated with the capital market's disruptions, present an opportunity for investors. Credit markets don't have any material or direct impact on these stocks, and to the extent the stocks have become cheaper, there has been an increased interest in them. They're also in a sector that three years ago people didn't really know existed, and two years ago there was a lot of moral debate over ownership of the stocks. Most of that has passed us, so there is a higher awareness of these stocks right now. Generally speaking, there has been over the last three years an increasing interest in these stocks across the board.

TWST: Where would you point investors in the space at this point?

Mr. Hecht: I would point them to Dollar Financial (NASDAQ:DLLR) and First Cash Financial (NASDAQ:FCFS).

TWST: Why those two?

Mr. Hecht: The argument is simple. They have diversification of product and diversification of geographies. They have market share and leadership in high growth markets and more of a product diversification away from any specific regulatory event.

TWST: What kind of growth are you expecting for those companies, looking over a couple of years?

Mr. Hecht: Both of them have had growth rates in excess of 20% for the past several years and we expect that to persist.

TWST: Are there any financial issues? Can they raise the money they need to finance what they're doing or is it all coming internally?

Mr. Hecht: First Cash Financial has almost no debt and very high cash flows, so we would expect expansion to be completely internal. Dollar Financial has a bit more leverage; however, it has sufficient free cash flow. We believe it has sufficient capital to embark on any expansion plan that we would currently envision as possible.