BUSINESS
EZCORP, Inc. provides pawn services in the United States and Latin America. The company operates through three segments: U.S. Pawn, Latin America Pawn, and Other Investments. It offers pawn loans collateralized by tangible personal property, jewelry, consumer electronics, tools, sporting goods, and musical instruments. The company also sells merchandise, primarily collateral forfeited from pawn lending operations and pre-owned merchandise purchased from customers. In addition, it offers EZ+, a web-based application that allow customers to manage their pawn transactions, layaways, and loyalty rewards online. As of September 30, 2022, the company owned and operated 515 pawn stores in the United States; 528 pawn stores in Mexico; and 132 pawn stores in Guatemala, El Salvador, and Honduras. EZCORP, Inc. was incorporated in 1989 and is headquartered in Austin, Texas.
INVESTMENT RATING
With future capital returns forecasted to exceed the cost of capital, EZPW is expected to continue to be a modest Value Builder.
EZCORP has a current Value Trend Rating of A (Highest Rating).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing highly consistent signals. EZCORP has a good Power Rating of 80 and a good Appreciation Score of 81, with the Highest Value Trend Rating the result.
EZCORP’s stock is selling well below targeted value. The current stock price of $10.29 compares to targeted value 12 months forward of $26.
EZCORP’s high appreciation potential results in an appreciation score of 81 (only 19% of the universe has greater appreciation potential.)
EZCORP has a Power Rating of 80. (This good Power Rating indicates that EZCORP has a better chance of achieving attractive investment performance over the near to intermediate term than all but 20% of companies in the universe.)
Factors contributing to this good Power Rating include: the recent trend in EZCORP’s earnings estimates has been favorable; recent price action has been favorable; and the Miscellaneous Retail comparison group is currently in a modestly favorable position.
INVESTMENT PROFILE
EZCORP’s financial strength is low. Financial strength rating is 16.
Relative to the S&P 500 Composite, EZCORP Inc has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that EZPW is higher risk. High expected growth is a positive for EZCORP. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, low historical growth, and high earnings variability. EZCORP’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. EZPW has unusually low market capitalization.
CURRENT SIGNALS
EZCORP’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
EZCORP’s current technical position is very strong. The stock price is in a 5.1 month up move. The stock has appreciated 38.0% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
EZCORP Inc (NASDAQ: EZPW). Marginal positive changes in fundamentals have recently occurred: significant quarterly earnings acceleration occurred.
The stock is currently rated A.
EZCORP Inc (NASDAQ: EZPW) stock declined modestly by -1.5% on 3/18/24. The stock closed at $10.29. However, trading volume in this decline was exceptionally low at 48% of normal. The stock has been strong relative to the market over the last nine months but has declined -2.9% during the last week.
CASH FLOW
In 2023, EZCORP generated a slight increase in cash of +$14.6 million (+7%). Sources of cash were slightly larger than uses. Cash generated from 2023 EBITDA totaled +$123.7 million. Non-operating uses consumed -$27.1 million (-22% of EBITDA). Cash taxes consumed -$13.1 million (-11% of EBITDA). Re-investment in the business amounted to -$137.7 million (-111% of EBITDA). On a net basis, debt investors contributed +$53.6 million (+43% of EBITDA) while equity investors provided +$15.1 million (+12% of EBITDA).
EZCORP’s Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Ezcorp Peer Group. (Since 2021 Non-operating Income, %EBITDA has experienced a very sharp decline.) In most years, EZCORP was in the top quartile and lower quartile. Currently, EZCORP is lower quartile at -22% of EBITDA (-$27.1 million).
EZCORP’s Cash Taxes, %EBITDA experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Ezcorp Peer Group. In most years, EZCORP was in the top quartile and third quartile. Currently, EZCORP is below median at -11% of EBITDA (-$13.1 million).
EZCORP’s Business Re-investment, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Ezcorp Peer Group. (Since 2021 Business Re-investment, %EBITDA has experienced a very sharp recovery.) In most years, EZCORP was in the top quartile and lower quartile. Currently, EZCORP is substantially below median at -111% of EBITDA (-$137.7 million).
EZCORP’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Ezcorp Peer Group. In most years, EZCORP was in the top quartile and lower quartile. Currently, EZCORP is at the upper quartile at +43% of EBITDA (+$53.6 million).
EZCORP’s Equity Investors, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Ezcorp Peer Group. In most years, EZCORP was in the top quartile and lower quartile. Currently, EZCORP is upper quartile at +12% of EBITDA (+$15.1 million).
EZCORP’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Ezcorp Peer Group. (Since 2021 Change in Cash, %EBITDA has experienced a very sharp recovery.) In most years, EZCORP was in the top quartile and lower quartile. Currently, EZCORP is at median at +12% of EBITDA (+$14.6 million).
EZCORP’s Cash, %Revenue has exhibited a minor overall uptrend over the period. This improvement was accompanied by stability for the Ezcorp Peer Group. (Since 2020 Cash, %Revenue has experienced a very sharp decline.) In most years, EZCORP was in the top quartile and second quartile. Currently, EZCORP is substantially above median at +22%.
PROFITABILITY
EZCORP’s return on equity has improved very significantly since 2014. The current level of 6.5% is 1.97X the low for the period and is -10.7% from the high.
EZCORP’s very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors is a major performance consideration.
The productivity of EZCORP’s assets remained stable over the full period 2014-2023: asset turnover has exhibited little to no overall change.
EZCORP’s pretax margin enjoyed a volatile overall uptrend over the period 2014-2023.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
EZCORP’s return on equity is slightly below median (6.5%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is at median (4.4%) reflecting asset turnover that is at median (0.73X) and at median pretax margin (6.0%).
Tax “keep” rate (income tax management) is below median (77.4%) resulting in after tax return on assets that is slightly below median.
Financial leverage (leverage) is above median (1.91X).
GROWTH RATES
There are no significant differences between EZCORP’s longer term growth and growth in recent years.
EZCORP’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been 1.6% per year.
Total asset growth has been 1.7% per year.
Annual E.P.S. growth has been 1.7% per year.
Equity growth has been -0.1% per year.
No consensus growth rate forecast is available for EZCORP.
Relative to the Ezcorp Peer Group, EZCORP’s historical growth measures are consistently third quartile. Equity growth (-0.1%) has been substantially below median. Total asset growth (1.7%) has been below median. Revenue growth (1.6%) has been at the lower quartile. E.P.S. growth (1.7%) has been at the lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, EZCORP’s stock price performance has been volatile and significantly below market. Between May, 2013 and March, 2024, EZCORP’s stock price fell -46%; relative to the market, this was a -83% loss. Significant price moves during the period: 1) April, 2019 – November, 2019: -53%; 2) February, 2016 – November, 2016: +302%; and 3) December, 2014 – February, 2016: -75%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 18.9% is above median relative to the S&P 500 Composite.
In addition to being above median relative to S&P 500 Composite, current annual total return performance through February, 2024 of 18.9% is substantially above median relative to EZCORP Inc Peer Group.
Current 5-year total return performance of 1.4% is lower quartile relative to the S&P 500 Composite.
Through February, 2024, with lower quartile current 5-year total return of 1.4% relative to S&P 500 Composite, EZCORP’s total return performance is at median relative to EZCORP Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, EZPW’s overall valuation is quite low. Four of five factors are lower quartile. The highest factor is the ratio of enterprise value/earnings before interest and taxes, followed by the ratio of enterprise value/assets, then by the price/earnings ratio, then by the ratio of enterprise value/revenue. The lowest factor, price/equity ratio, is lower quartile.
Relative to EZCORP Peer Group, EZPW’s overall valuation is quite low. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is slightly above median. Ratio of enterprise value/revenue is at the lower quartile. Ratio of enterprise value/assets is at the lower quartile. Price/earnings ratio is lower quartile. The lowest factor, the price/equity ratio, is lower quartile.
EZCORP has a major value gap compared to the median. For EZPW to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.06X to 1.38X. If EZPW’s ratio of enterprise value/revenue were to rise to 1.38X, its stock price would be higher by $7 to $17.
For EZPW to achieve upper quartile valuation relative to the EZCORP Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 1.06X to 1.87X. If EZPW’s ratio of enterprise value/revenue were to rise to 1.87X, its stock price would increase by $17 from the current level of $10.
VALUE TARGETS
With future capital returns forecasted to exceed the cost of capital, EZPW is expected to continue to be a modest Value Builder.
EZCORP’s current Price Target of $27 represents a +160% change from the current price of $10.29.
This high appreciation potential results in an appreciation score of 81 (only 19% of the universe has greater appreciation potential.)
Reinforcing this high Appreciation Score of 81, the high Power Rating of 80 contributes to an Value Trend Rating of A.
EZCORP’s current Price Target is $27 (+17% from the 2023 Target of $23 and +160% from the 03/18/24 price of $10.29). This slight rise in the Target is the result of a +5% increase in the equity base and a +12% increase in the price/equity multiple. The forecasted increase in cost of equity has a large negative impact on the price/equity multiple and the forecasted decline in growth has a very slight negative impact as well. More than offsetting these Drivers, the forecasted increase in return on equity has a very large positive impact.
PTR’s return on equity forecast is 7.7% — in line with our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is above the 2021 low of 4%.
PTR’s growth forecast is 6.0% — above our recent forecasts. Forecasted growth exhibited a modest, erratic increase between 2015 and 2023. The current forecast is well above the 2019 low of 0%.
PTR’s cost of equity forecast is 5.6% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2015 and 2023. The current forecast is below the 2015 peak of 10.1%.
At EZCORP’s current price of $10.29, investors are placing a negative value of $-3 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 7.0% per year, and a return on equity of 6.3% versus a cost of equity of 4.9%.
PTR’s 2025 Price Target of $27 is based on these forecasts and reflects an estimated value of existing assets of $16 and a value of future investments of $10.
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