E Are FirstCash Shareholders Reaping The Benefits Of Exiting Payday Lending?

FirstCash Inc. (NYSE: FCFS) reported its Q1, 2017 results last week. The company posted massive increments in revenue and income following its merger with Cash America last year, which saw it add 815 pawn stores in the US and a further 220 in Latin America. The company’s revenues for Q1 came at $448 million compared to last year’s figure of about $183 million. Diluted EPS was $0.68 compared to $0.48 reported in Q1, 2016. FirstCash Inc's stock price has been on a rally since the end of January and has shown no signs of slowing.

The company is in the process of phasing out its payday loans business to concentrate solely on pawn stores. It is expecting earnings drag of about $0.3 per share in 2017 as it continues to close more payday lending units.

One of the reasons the company is doing this is because of increased regulation of payday lending in various States while at the same time, more entrants continue to make life difficult in the business. Currently, there are numerous payday lending businesses in the US that are solely online-based. These businesses have taken advantage of a particular group of borrowers that seem unlikely to get credit from other lenders.

For instance, MatchedLoans is an online platform that offers loans to people with no jobs, and given the emphasis major US lending institution place on a borrower’s credit score, it makes sense why there are so many businesses interested in this section of the credit market.

However, due to the sensitivity of the credit market, more states are now moving in to impose various rules on the market. These include capping interest rates charged on loans, as well as, the minimum number of months required to repay loans in the payday loans market.

These regulations alongside the ease of entry into the online payday loans business have been making life difficult for companies that are predominantly involved in pawn store lending, and this is why FirstCash is strategizing to focus on pawn shops.

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Disclosure: The material appearing on this article is based on data and information from sources I believe to be accurate and reliable. However, the material is not guaranteed as to accuracy nor does it purport to be complete. Opinions and projections, both my own and those of others, reflect views as of dates indicated and are subject to change without notice. The contributions and opinions of others do not necessarily reflect the views of Nicholas Kitonyi. Nothing appearing on this article should be considered a recommendation to buy or to sell any security or related financial instrument. Investors should discuss any investment with their personal investment counsel. Past performance does not guarantee future results.

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