I prefer EZCORP (EZPW) over Cash America (CSH) due to the heavier exposure of the latter to the cash advance business, but both have extensive pawn shop networks. I was trying to figure out why EZCORP was up so much today when I saw this Cramer blurb.
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Cash-strapped consumers don’t have the same options struggling banks do. The Fed discount window doesn’t open for Joe Six-Pack. So when times get tough and credit is non-existent, a lot of Americans turn to a different window, at their local pawnshop, to raise money.
Sure, this one’s bulletproof and you have to scream at the clerk through tiny air holes to get his attention, but pawnshops do trade greenbacks for jewelry. And as morbid as it may sound, more and more people might be exchanging their favorite gold bracelet for cash as the U.S. economy continues its downward spiral.
That’s why Cramer likes Cash America [CSH 36.46 
0.37 (+1.03%) ]. He’s not a big fan of what they do – pawn and payday lending as well as check cashing – but he has been recommending these trade-down plays in anticipation of a recession (think discount retailers like Wal-Mart [WMT 52.80 
-0.97 (-1.8%) ]). As consumers pull their belts tighter, these are the companies that do well.
Cash America is the largest pawnbroker in the country, with 480 shops in 22 states. It’s a business with high barriers to entry, thanks to heavy regulation, so competition shouldn’t threaten the company. And a recent purchase worth 80% of a Mexican pawn operator should boost earnings as soon as the deal closes in December.
There’s even a stealth play on gold here. At the end of the second quarter, 71% of Cash American’s inventory was jewelry. The company sells the jewelry of customers who can’t payback their loans, so Cash America should fetch some decent prices with gold up 25% from 2007 levels.
One note about the regulation, though, before we give you the play on CSH. Cash America is losing some revenue because new rules about payday lending are cutting into the company’s profits – as much 70% to 80% in Ohio alone. Luckily, Cash America got an extension to do business there past the Sept. 1 deadline, so that should help earnings. Plus, the company’s finding ways around the rules by offering alternative lending products and online cash-advance services.
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[Sep 8: EZCORP Acquires 11 Pawn Shops in Nevada]
[Aug 11: EZCORP Down 8% on Termination of Value Financial Deal]
[Jul 24: Cash America (CSH) and EZCORP (EZPW) Both Report Today - Starting Small Stake in EZCORP]
Long EZCORP in fund; no personal position
7 comments:
Do you think their payday lending and check cashing revenues could be impacted by the illegal aliens going home? I read somewhere that since construction has pretty much stopped that many illegals were heading back to Mexico or wherever and I would assume they were probably big users of these sorts of businesses.
I think more than enough Americans are taking their place.
But I don't like the cash advance business - too much regulatory risk. Prefer the pawn shop aspect so hence the focus on EZPW over CSH and others.
TM... Did you check to see if Cramer subscribes to your blog... I think it's JimCramer@TheStreet.com ...
Actually, he has proposed similar stock picks in the past..DLLR and I think EZPY (Easypay ?? ) ..
jegan
Funny you say that, I have a running joke with someone else because for about a 3 week period whatever I wrote in the blog he'd write a very similar thing in his post 4 PM post on realmoney.com ;)
Who know who reads this... I don't know how he juggles everything he does as it is.
Payday Loan should be an option for everyone when things go bad and we need quick cash. There fast, easy and the best part is that everything is confidential.
Well aside from the fact that his show (and personality apparently) are pretty spastic, this is actually a really good recommendation I think. While I'm also not a big fan of cash advance loans, people seem to use them all the time, especially when times are tight (which is ultimately a bad thing for the consumer, but it can get them through tight spots).
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