TSC Ratings' Updates: First Cash Financial

The following ratings changes were generated on Wednesday, Dec. 31.

We've upgraded First Cash Financial Services (FCSC Quote), which provides consumer financial services and related specialty retail products through pawn stores in the United States and Mexico, from hold to buy. This upgrade is driven by a few notable strengths, such as the company's robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

The revenue growth came in higher than the industry average of 1.1%. Since the same quarter one year prior, revenues rose by 17.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.

The current debt-to-equity ratio, 0.51, is low and is below the industry average, implying that there has been successful management of debt levels. Along with this, the company maintains a quick ratio of 2.69, which clearly demonstrates the ability to cover short-term cash needs.

Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Consumer Finance industry and the overall market, First Cash Financial's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.

Net operating cash flow has significantly increased by 827.17% to $6.77 million when compared to the same quarter last year. In addition, First Cash Financial has also vastly surpassed the industry average cash flow growth rate of -32.85%.

The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.