Tuesday, October 17, 2006

While consumer advocates may wish to never see a payday loan company ever again, those in the stock market are realizing how profitable these firms can be.

Take EZ Corp., for example.

In addition to the more than 300 pawnshops it operates under the EZPAWN name, it also serves as short-term loan operator - often referred to as a fast payday loan lender - in more than 330 EZMONEY stores.

The company raised earnings expectations in the fourth quarter by 40% because, among other things, it was able to open 46 new stores without any drag. It began churning out profits with lower costs than expected.

During this time, payday advance lenders have become increasingly unliked among politicians and so-called consumer-interest groups. Industry leader Advance America has even incurred the wrath of Pennsylvania regulators for figuring out a way to do business even though the Keystone State would prefer to drive its type of company out altogether.

The interest groups, banks, politicians, and regulators chafe at what they consider exorbitant interest rates charged for small, short-term loans. EZ Corp. has so far avoided a similar fate by limiting its reach to 13 states, primarily in the South.

For the fourth quarter, EZ Corp. expects to report earnings in the range of $0.61 to $0.64 a share compared with its prior forecast of $0.43 to $0.46, and for the full year it expects to earn between $2.05 and $2.08 per share, nearly double the $1.09 it earned in 2005. The company also expects to grow profits by 17% in 2007, earning $2.45 per share, whereas analysts had been expecting just $2.32 per stub.

Stock prices among all no fax cash advance lenders increased on EZ Corp.'s news, but the 17% increase at EZ Corp. means it is no longer undervalued compared with its peers, as it once was.

As the chart below shows, on a trailing basis, the pawnshop operator was among the lowest valued in the industry on a P/E basis and in the middle of the pack on a forward valuation.

However, the new estimates now put it firmly ahead of the competition, making it perhaps not the value for investors it was only just last Friday, even though it's still a little below its 52-week high that it hit back in July.

Over the course of the year, EZ Corp. has more than tripled in value. While the industry has come under pressure from various quarters, and as some states seek to limit or ban no faxing payday loans altogether, the company has pretty much insulated itself from those vagaries by carefully choosing the states it does business in.

This entry was posted on Tuesday, October 17th, 2006 at 5:42 am and is filed under National.