The Fort Worth, Texas-based check-cashing company and pawn broker increased profit 34% to $32 million, or $1.01 a share, in the first quarter, twice the pace of the average in the past three years. Its cash balance soared 57% to $41 million, and debt declined by 18%. This is one financial-services company that doesn't need a government bailout.
A quarter of U.S. households don't use banks or do so sparingly, bypassing financial institutions in favor of such alternatives as check-cashing stores and pawn shops, the Federal Deposit Insurance Corp. said in December. Of the households surveyed, 7.7% were "unbanked," which translates to 9 million households and 17 million adults.
Transaction fees at Cash America, which also offers cash advances, are exorbitant. That's because the company's financial services are offered to people in desperate need of liquidity. First-quarter revenue grew 17% to $313 million, helping to push up its operating margin to 18% from 16%.
Cash-advance revenue soared 40% in the first quarter, while the loss rate increased gradually to 5.2%. Cash America also buys gold, a lucrative endeavor since the spot price currently exceeds $1,135 per ounce -- near a record. Though Cash America is thriving, it cites state and federal legislation as threats to profitability. The company is downsizing businesses in Arizona and Maryland due to pending reform bills.
Cash America's shares have appreciated 86% during the past year, outpacing stock-market benchmarks. They sell for a price-to-projected-earnings ratio of 10, a price-to-book ratio of 1.8 and a price-to-cash-flow ratio of 4.6, 46%, 26% and 35% discounts to consumer-finance industry averages. The stock is also cheap based on trailing earnings and sales. Cash America pays a 4 cent quarterly dividend, equal to a modest annual yield of 0.3%.
The buy- and sell-side are bullish about Cash America's prospects. Of analysts covering the stock, nine, or 82%, rate it "buy" and two rate it "hold." The median price target is $46.75, leaving a potential 13% return. Small-cap specialists
Sidoti & Co.
Feltl & Co.
expect the stock to rise 26% to $52.
, the largest researcher covering Cash America, believes its shares will gain 16% to $48.
During the fourth quarter, 10 of Cash America's 15 largest holders, including
, purchased additional shares. Four of the largest owners decreased their holdings and one retained the size of its bet.
Cash America's stock has gained 18% in 2010, but is cheap enough to justify a purchase.
rates it and competitor
-- Reported by Jake Lynch in Boston.