EZCORP, Inc. – Profiting from Tough Times -EZPW

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Aug 17, 2009
EZCORP Inc. [NDQ:EZPW] August 17, 2009 - $11.90 @ 11:40 AM EST

52-week range: $9.50 (Mar. 2, 2009) - $19.25 (Sep. 30, 2008)


What business is likely to prosper when economic conditions get really bad?

Pawnshops. EZ CORP operates about 294 in the US and 38 in Mexico while also offering payday loans through 71 of its pawnshops and 477 EZMONEY store fronts.


As you would expect sales and earnings have been booming as the world suffers through the worst recession since the 1930’s. Here are their (split-adjusted) per share numbers as reported by Value Line:


Year ........ Sales ........ C/F .......... EPS ....... B/V ....... Avg. P/E ... 52-wk Range

2002 ........5.39 .........0.34 .........0.07 ........2.86 ........13.9x ....... 0.40-1.70

2003 ........5.64 .........0.47 .........0.22 ........2.88 ..........5.6x .........0.90-3.00

2004 ........6.14 .........0.45 .........0.23 ........3.15..........12.6x ........2.20-5.20

2005 ........6.59 .........0.59 .........0.36.........3.46 .........12.3x ........3.10-7.40

2006 ........7.80 .........0.94 .........0.69 ........4.20 .........13.2x ........4.90-17.10

2007 ........9.01 .........1.15 .........0.88 ........5.23 .........16.3x .......10.10-17.60

2008 ...... 11.02 ........1.56 .........1.21 ........6.58 .........11.1x ........10.00-19.30


Over the six years 2002-2008 all aspects of the business surged while the valuation has contracted. Zacks and Value Line both see earnings of around $1.40 for this year and $1.64 - $1.70 for 2010. That makes the multiple just 8.5x the 2009 estimate and about 7.3x next year’s expectations.


The only other time EZCORP was available for a single-digit P/E was in 2003. Buyers of EZPW shares back then saw their shares rocket from $0.90 to $5.20 in one year, on their way to peaking at $17.10 by late 2006.


The balance sheet is solid with treasury cash exceeding total debt. Value Line gives EZCORP a ‘B++’ for financial strength (a very high mark from them for a small-cap issue). They also rank EZPW in the 80th percentile for stock ‘price growth persistence’ (with 100th being best).


A bounce back to even a historically low 11 times earnings would see EZCORP shares back at $15.40 by year-end 2009 and about $18 or better by the end of 2010.


Are those crazy targets? Not at all. EZCORP shares have actually traded at $17 and higher in each calendar year 2006-2007-2008 and 2009 to date. With all fundamentals growing nicely my goal prices may end up looking way too conservative.


I’m a buyer of the shares and a seller of puts right now. Here are the put premiums and their respective break-even points for those who might like to gain exposure at even lower than today’s quote.


................................................................ Net Break-Even Price

Sell March $10.00 Puts @ $0.65 /share .............. $9.35 /share

Sell March $12.50 Puts @ $1.90/share .............. $10.60 /share

Sell March $15.00 Puts @ $3.60 /share ............. $11.40 /share


EZCORP is a proven growth company with macro-economic tailwinds. How many companies can you think of that continue to show wonderful growth in the current economy, yet still trade at a single-digit P/E?


EZCORP shares could easily post 30% - 50% gains over the next 12 – 18 months.



Disclosure: Author is long EZPW shares and short EZPW puts.