1. November 2, 2015
CASH AMERICA INTERNATIONAL INC.
CSH/NYSE
Continuing Coverage: CSH is as Good as Gold
Investment Rating: Market Underperform
PRICE: $ 34.76 S&P 500: 2,104.05 DJIA: 17,828.76 RUSSELL 2000: 1,186.09
Enova spin‐off reveals true company value
Consumer loan de‐emphasis reduces regulatory risk
New management provides company stability
Continuing acquisitions bring future revenue growth
Mexico divestiture eliminates foreign currency risk
Dividends and stock repurchases return value to shareholders
Our 12‐month target price is $31.00.
Valuation 2014 A 2015 E 2016 E
EPS* $ (0.36) $ 1.03 $ 1.17
P/E NM 33.9x 29.8x
CFPS $ 3.59 $ 4.40 $ 4.43
P/CFPS 9.7x 7.9x 7.8x
* Excluding non‐recurring items
Market Capitalization Stock Data
Equity Market Cap (MM): $ 890 52‐Week Range: $18.77 ‐ $35.32
Enterprise Value (MM): $ 1,076 12‐Month Stock Performance: 61.78%
Shares Outstanding (MM): 25.60 Dividend Yield: 0.86%
Estimated Float (MM): 24.77 Book Value Per Share: $ 40.01
6‐Mo. Avg. Daily Volume: 355,858 Beta: 0.74
Company Quick View:
Cash America is more than just a pawn in the financial services game. Cash
America is the largest pawn shop company in the U.S. The Company operates in
21 states with roughly 900 locations and is headquartered in Fort Worth, Texas.
Cash America offers pawn loans, cash advances, check cashing services, and
other alternative investment options to low‐credit consumers who cannot open
accounts at traditional financial institutions. Cash America also has locations
under the Cashland, Mr. Payroll, and Cash America Payday Advance brands.
Analysts: Investment Research Manager:
Casey Lynch Jacob Pritikin
Marcy Applebaum
Ilyse Bender
The BURKENROAD REPORTS are produced solely as a part of an educational program of Tulane University's
Freeman School of Business. The reports are not investment advice and you should not and may not rely on
them in making any investment decision. You should consult an investment professional and/or conduct your
own primary research regarding any potential investment.
Wall Street's Farm Team
BURKENROADREPORTS
2. Cash America International (CSH) BURKENROAD REPORTS (www.burkenroad.org) November 2, 2015
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Figure 1: 5‐year Stock Price Performance
Source: Yahoo Finance November 2, 2015
INVESTMENT SUMMARY
We give Cash America International Inc. a rating of Market Underperform. Our 12‐month
target price is $31.00. We used the discounted cash flow to the firm, price to earnings multiple,
and price to book multiple valuation methods to calculate the target price.
Cash America, headquartered in Fort Worth, Texas, is the largest domestic company in the
pawn industry with retail and loan shops across the U.S. The Company’s main source of
revenue is pawn loans, but it also generates sales from collateral retail, consumer loans, and
payday loans. Cash America’s main customers are those unable to receive traditional loans
from a bank. The Company is growing through its reorganization after spinning‐off its online
segment, Enova, de‐emphasizing consumer loans, restructuring head management, increasing
acquisitions, divesting from Mexico, and increasing dividends and stock repurchases.
In November 2014, Cash America spun‐off Enova to focus on its brick‐and‐mortar locations and
diffuse investor confusion. This decision has helped the Company minimize its regulatory costs
and focus on issuing domestic pawn loans. Cash America is further reducing regulatory costs by
cutting back on its consumer lending services and focusing on its pawn services, which provide
a more secure regulatory environment. Furthermore, Cash America announced T. Brent Stuart
as its new Chief Executive Officer (CEO) succeeding former CEO Daniel R. Feehan. The
Company stressed that the new management shift will not affect the operations of the
Company because Mr. Feehan will continue to serve as Chairman of the Board for Cash
America. Cash America looks to build between 25‐50 new stores within the next three years.
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Table 1: Historical Burkenroad Ratings and Prices
Report Date Stock Price Rating
12 Month
Target Price
11/20/14 $25.00_ Market Outperform $33.00_
11/07/13 $38.64* Market Outperform $50.00*
10/26/12 $38.91* Market Outperform $52.00*
*Price at time of report date and prior to Enova spin‐off
INVESTMENT THESIS
Enova spin‐off reveals true company value
Before November 2014, Cash America had two distinct business segments. The first segment
included retail and pawn lending services, which produced steady, low‐risk revenue streams.
The second segment included e‐commerce services, which produced rapidly growing, high‐risk
revenue streams. The success of each segment depended on different factors. In retail and
pawn lending, profitability depended on economic conditions. In e‐commerce and consumer
lending, profitability depended heavily on regulatory requirements and analytics. The spin‐off
of the Company’s e‐commerce segment, Enova, returned Cash America’s business to a “pure
play” pawn lender. With this spin‐off, the Company reduced its regulatory costs and allowed
management to focus on its core business of pawn lending. In 2014, total pawn loans written
in the U.S. increased by 7.7% compared to a 4.6% increase in 2013, while pawn lending
activities accounted for 90.4% of the Company’s total revenues in 2014. Continued pawn loan
growth should result in increased Company revenues in the future.
Consumer loan de‐emphasis reduces regulatory risk
Cash America is reducing its exposure to regulatory risk by decreasing its consumer lending
services. Pawn lending has a stable regulatory environment, while regulations in consumer
lending are rapidly increasing. In addition to the Enova spin‐off, the Company is de‐
emphasizing its in‐store consumer lending services. Cash America eliminated short‐term
consumer lending services in 311 of its stores in 2014. In addition, the Company eliminated 36
locations in Texas providing only consumer loans. In 2014, consumer loan fees accounted for
only 8.9% of total revenues compared to 11.0% of total revenues in 2013. The Company’s de‐
emphasis on consumer loans will reduce regulatory compliance costs as well as costs
associated with hedging against unknown future regulations.
New management provides company stability
The Company recently restructured its upper management upon the retirement of the former
Chief Executive Officer (CEO), Daniel R. Feehan. T. Brent Stuart took over as Cash America’s
new CEO on November 1, 2015. Mr. Stuart has been with Cash America for five years and the
Company is not expected to change drastically under his leadership. Daniel R. Feehan, Cash
America’s former CEO, will remain active in the Company’s operations with his new position of
Chairman of the Board.
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Mr. Stuart will work on cutting costs and continue strengthening Cash America to be the most
profitable pawn business. The new management restructure should bring more stability to the
Company moving forward.
Continuing acquisitions bring future revenue growth
Cash America is returning to its core business of pawn lending following the Enova spin‐off.
Pawn lending is a mature, fragmented industry with a relatively low growth rate. According to
IBISWorld, the industry growth rate over the next five years will be 1.9%. Because of this low,
stable growth rate, the Company’s future growth depends on its ability to increase its market
share by acquiring competitors. As such, Cash America has strong cash flows to pursue
acquisitions. Over the past three years, the Company acquired 132 locations throughout the
U.S. and closed 293 non‐strategic locations. Cash America plans to open 15 to 25 new stores in
2016 and 25 to 50 new stores in the next three years, which should allow the Company to
continue its revenue growth.
Mexico divestiture eliminates foreign currency risk
As part of Cash America’s post‐Enova restructuring, the Company eliminated its operations in
Mexico. Over the past three years, Cash America eliminated 198 Mexico‐based stores. The
Company now operates solely in the U.S. Prior to this divestiture, Cash America faced the risk
of unexpected changes in foreign currency exchange rates. In 2013, the Company incurred a
loss of $1.8 million on forward currency exchange contracts to decrease its exposure to
currency risk. Cash America’s eliminated exchange rate costs will lead to increased marginal
profitability and higher revenues looking forward.
Dividends and stock repurchases return value to shareholders
The Company is reinvesting cash to build long‐term shareholder value. In January 2015, Cash
America authorized a new share repurchase plan and increased the annual dividend. The new
share repurchase plan authorized the repurchase of four million shares, and the Company has
already purchased 2,332,230 (8% of total shares outstanding) through the third quarter of
2015. In September 2015, Cash America authorized an additional 3 million shares to be
repurchased upon the completion of the January repurchase plan. The Company increased its
annual dividend by 43% to $0.20 per share. Cash America’s stock repurchases and increased
dividend will return value to shareholders.
VALUATION
Our 12‐month target stock price for Cash America is $31.00. We derived this target price using
the discounted free cash flow to the firm method, price to earnings multiple method, and price
to book multiple method. Our final target price came from a weighted average of the prices
resulting from these three methods. Our valuation methods led to an investment rating of
market underperform.
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Figure 2: Burkenroad Valuation
Discounted Cash Flow Method
Discounted cash flow (DCF) is a valuation method used for determining the intrinsic value of a
company. The DCF method determines the value of a company by discounting its projected
free cash flows back to the present using the company’s after‐tax weighted average cost of
capital (WACC). To find the WACC for Cash America, we used the capital asset pricing model
(CAPM) to arrive at a cost of equity of 7.0%. We estimated the Company’s pre‐tax cost of debt
at 7.19% using the Company’s historical average interest rate, and we estimated Cash
America’s liquidity premium at 5.0% based on the Company’s market capitalization. We arrived
at a WACC of 11.74% for Cash America. We assumed a terminal growth rate of 2.50%, which is
equal to the 20‐year U.S. Treasury yield. The DCF approach yielded a 12‐month target price of
$25.60.
Price to Earnings Multiple Method
The price to earnings multiple method calculates how many times a stock is trading at its
market price per each dollar of earnings, and is one of the most popular valuation methods
used by investors. Due to a lack of a strong peer group, we could not use a peer average to
help conduct our valuation and instead we used Cash America’s historical averages. By using a
current stock price of $34.00 and a historical Company price to earnings multiple of 26x, we
derived a projected stock price of $33.43 using the price to earnings multiple method.
Price to Book Multiple Method
The price to book method is often used to value companies because it demonstrates how well
management is controlling its asset portfolios. This method is useful to value companies like
Cash America, which holds significant physical assets, unlike technology companies, which
typically have a low amount of assets. Because Cash America does not have a strong peer
group, we used the Company’s historical price to book multiple of 0.89 and a current stock
price of $34.00 to derive a 12‐month target stock price of $34.12.
6. Cash America International (CSH) BURKENROAD REPORTS (www.burkenroad.org) November 2, 2015
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INDUSTRY ANALYSIS
Cash America International, Inc. (NYSE:CSH) operates in the pawn shop and check cashing
industries. Both attract similar customers, but the two industries’ revenues come from
different products and services.
The pawn shop industry is a segmented industry in which most pawn shops are family‐owned
businesses. Cash America is the market share leader in the pawn loan industry with 14.4%
market share. Companies in this industry make a profit by offering individuals secured loans
using personal property as collateral. These companies also sell forfeited collateral from
unpaid loans through retail and commercial sales. According to IBIS World, total industry
revenue grew 3.2% annually over the past five years to roughly $6.6 billion in 2014. Industry
growth has recently slowed due to the economic recovery, which reduced the need for pawn
loans. Still, the industry’s revenues are expected to grow at 1.5% annually over the next five
years.
Cash America also operates in the check cashing and payday loan services industry. The
Company has the second largest market share in this industry with 5.6% market share. The
market share leader, AARC LLC, has 7.1% market share and the remainder of the industry is
divided among small companies. Companies in this industry offer payday loans, installment
loans, check cashing, and other financial services. Industry revenue grew at an average of 1.8%
annually over the past five years to roughly $11.2 billion in 2014. Industry revenues expect to
continue growing at the same rate over the next five years.
Several macroeconomic factors can impact the pawn loan industry. The unemployment rate,
the price of gold, and customers’ disposable income all impact the demand for consumer loan
and pawn shop services. As the unemployment rate rises and disposable income decreases,
pawn shop lending increases for low‐income customers who need the necessary funds to cover
basic expenses. When customers have less disposable income to spend, pawn shop profit
increases because customers generally need more loans. However, customers spend less on
retail products because they will not buy items that are not considered necessities. However,
pawn shops see a rise in profit when gold prices rise because gold is a significant part of retail
sales.
Regulatory Environment
The U.S. government imposes many regulations on the pawn shop industry and the check
cashing and payday loan services industry. In both industries, the amount of regulations have
continued to increase. Pawn shop companies require a license to operate and are heavily
regulated. Companies can lose licenses for failing to comply with regulations. The National
Pawnbrokers Association provides resources and information to pawn shops. Regulations in
the check cashing and payday loan services industry vary on the state and federal level. State
governments primarily regulate check cashing by limiting the amount of service fees and
requiring strict licensing. On the federal level, companies in the industry must disclose the
principal terms of each transaction, the dollar amount of charges, and the annual interest rate.
7. Cash America International (CSH) BURKENROAD REPORTS (www.burkenroad.org) November 2, 2015
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Customers
In the pawn industry, a majority of the customers are individuals, with strong retailers and
commercial buyers comprising only 1% of customers. The average customer is 36 years old and
has a household average income of $29,000. The industry classifies its customers by
generation, with Generation X composing 35% of the market, Baby Boomers composing 30% of
the market, and Generation Y composing 22% of the market.
In the consumer loan industry, the majority of customers make less than $40,000 annually.
Customers in this industry include people without a four‐year college degree, home renters,
and people who are separated or divorced. Figure 3 shows the distribution of customer loans
based on consumer income level.
Figure 3: Consumer Loan Market Segmentation
Source: IBIS World
Geographic Area
The pawn industry and check cashing payday loan services industry are highly concentrated in
the Southeast and Southwest regions because the average disposable income level in these
regions’ is very low. These two regions compose about 50% of the market. In contrast, New
England and the Mid‐Atlantic regions have fewer pawn establishments because these areas
have high levels of per capita personal income. Thus, Cash America has the majority of its
stores located in the Southeast, Southwest, and Midwest regions.
18.40%
22.50%
16.30% 16.35%
10.20%
8.20%
6.10%
2.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Under
$15
$15 ‐
$24.9
$25 ‐
$29.9
$30 ‐
$39.9
$40 ‐
$49.9
$50 ‐
$74.9
$75 ‐
$99.9
Over
$100
Percent of Market
Household Income (in thousands)
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Threat of Entry
The pawn shop industry has moderate threats to entry. In regards to market conditions, as the
overall economy improves, the pawn industry becomes less popular because pawn loans are
no longer necessary. Additionally, required state licensing can be difficult and costly to obtain,
which may prohibit firms from entering the market.
The check cashing and payday loan services industry has relatively low threats to entry, but the
threats are continuing to increase. According to IBIS World, a new location in the U.S. costs
around $500,000 and can be opened in four to eight weeks. In contrast, international startup
costs are much lower, $50,000, due to cheaper labor. Another threat is that companies must
obtain the appropriate licensing and find a location that is not already saturated by
competitors. With additional federal and state regulations, threats to entry will increase.
Bargaining Power of Suppliers
The pawn shop industry’s suppliers are its customers. Customers supply goods in the industry
through direct sales and pawn loan defaults. Customers selling goods through direct sales to
the company have high bargaining power. If a company’s valuation of a good is not accurate
and competitive, a customer can easily sell the good to a different company offering a better
price. Bargaining power of suppliers is low when collateral is held for sale. If customers default
on pawn loans, their collateral is taken and held for sale by the company.
Companies can utilize three methods to control liquidity and fund operations in its check
cashing industry. Near‐term liquidity allows a company to maintain enough resources to
support its seasonal working capital increase. Longer‐term financing strategies control its debt
refinancing risk. Cash America manages long‐term liquidity through access to debt capital
markets and its domestic and multi‐currency lines of credit to borrow from the bank and fund
its operations. Suppliers maintain bargaining power over companies by charging high interest
rates.
Bargaining Power of Buyers
The main customers in both industries are low income individuals. Customers in these
industries buy various used merchandise, collateralized loans, check cashing services, and
payday loans. The bargaining power of these buyers is very low in the collateralized loans and
payday loans market. Companies in the pawn industry provide loans for short‐term, low‐credit
borrowers who are limited in loan options and see pawn lending as a last resort. Therefore,
companies in the pawn industry can charge any price without fear that customers will be
unwilling to pay. In the pawn shop industry’s retail sales of used merchandise, bargaining
power of buyers is high. Customers have no switching costs; they either buy the product from
a pawn shop or buy the product from other retail locations.
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Availability of Substitutes
Commercial banks, credit cards, and consumer loans at other lending institutions are all
substitutes for the pawn shop industry and the check cashing and payday loan industry.
Commercial banks offer check cashing and payday loans through the issuance of small business
loans. However, these substitutes are not available to all pawn industry customers due to the
group’s credit factors.
Competitive Rivalry
Competition in the check cashing and payday loan services industry is high and expected to
increase over the next five years due to innovative peer‐to‐peer lending programs that could
lower interest rates. Companies in the industry compete on the basis of price and convenience.
The industry’s internal competition consists of other pawnbrokers while its external
competition includes commercial banks, credit card issuers, consumer lending shops, used
good stores credit unions, real estate loans, and collateralized debt.
Competition in the pawn shop industry is moderate and not expected to increase because of
the large number of used goods stores already in place. Companies like Cash America
accumulate more sales than smaller establishments due to its reputation and its familiarity
among consumers. Companies further compete over number of retail locations, array of
products, product quality, and price with other pawnbrokers. Aside from pawn shops, the
Company faces competition for low‐income consumers from non‐profit organizations.
ABOUT CASH AMERICA
Cash America International, Inc. (CSH/NYSE) began in Irving, Texas in 1983 when Jack
Daugherty founded the Company with the goal to provide financial assistance to those
struggling to receive loans and cash advances from standard financial institutions. The
Company issued its initial public offering in January 1987 on the American Stock Exchange
under the ticker “PWN.” Three years later, Cash America registered on the New York Stock
Exchange and did not switch to its current symbol, “CSH,” until 2004. The Company is currently
headquartered in Fort Worth, Texas, and operates in 21 states nationwide. As shown in Figure
4, Cash America is mainly focused in the southern region of the country. The Company’s total
revenue in 2014 was roughly $1.1 Billion.
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Figure 4: Cash America Retail Coverage and Top Ten States Based on Number of Locations
Source: Cash America’s Investor Presentation June 30, 2015
Products
Cash America offers different products in the two sectors where it operates: financial services
and retail. In the financial services sector, the Company’s products include pawn loans, cash
advances, auto title loans, gold buying, check cashing, and prepaid debit cards. Pawn lending is
the primary form of its financial services. The Company generates revenue in pawn lending
through pawn loan fees and service charges as well as through the sale of collateral from
forfeited pawn loans. Pawn service charges contribute 56% of Cash America’s net revenue. The
Company provides cash to customers by issuing consumer loans through third parties, while
check cashing and other financial services are provided only through company‐owned lending
locations. Consumer loans contribute to 11% of Cash America’s net revenue.
The retail sector includes the customers’ loan collateral, such as jewelry, electronics, tools, and
musical instruments that customers forfeit due to the inability to pay off loans, as shown in
Figure 5. Cash America determines the prices for collateral items through research and tests,
like jewelry authentication and electronic workability, to determine the item’s specific
condition and value. About 20% of the time customers forfeit their collateral, which is then
sold through retail or commercial sales. The sale of forfeited merchandise contributes to 32%
of the Company’s net revenue.
Cash America’s target customers are “non‐traditional borrowers.” These borrowers are not
willing or able to set up bank accounts to obtain short‐term bank loans. This target customer
segment consists of 51 million adults. The customers are served by one of the 826 Cash
America locations in the U.S.
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Figure 5: Inventory Held for Sale
Source: Cash America’s Investor Presentation as of June 30, 2015
Strategy
Cash America is the largest pawn company in the country with a modernized approach in the
pawn industry. The Company has large stores with a computerized inventory and centralized
management. Cash America reaches its customers by creating stores at stand alone buildings
with attractive exteriors, as seen in Figure 6, and by offering memorable, friendly customer
service. The Company’s management and employees partake in intensive training programs,
which create knowledgeable, helpful staff. Cash America is growing through acquisitions of
smaller pawn chains. In fact, over the past three years, Cash America has increased its U.S.
based pawn locations by 20% adding 132 pawn loan locations. Significant acquisitions include
42 stores in Texas, 31 in Georgia, 19 in Tennessee, and ten in North Carolina. Cash America
financed these acquisitions through the Company’s line of credit. Additionally, Cash America is
phasing out its cash advance products to put more emphasis on pawn customer service. Cash
advance products contributed to 8% of the Company’s total revenue. The Company assesses
its strategy every quarter.
14%
7%
4%
55%
20%
0% 10% 20% 30% 40% 50% 60%
Other
Tools
Musical Instruments
Jewelry
Electronics
Percent of Total Inventory
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Figure 6: Cash America Retail Location
Source: Cash America’s Investor Presentation June 30, 2015
Competition
According to IBIS World, Cash America is the market share leader in the U.S. pawn loan
industry with 14.4% market share. The Company’s main competitors are EZCORP, Inc., with
8.2% market share and First Cash Financial Services, Inc., with 4.9% market share. Cash
America, EZCORP, and First Cash Financial Services are the three largest domestic publicly
traded pawn shop companies. Each of these competitors offer similar product offerings as
Cash America but on a smaller scale. In addition to the pawn loan industry competitors, the
Company faces a large amount of competition from consumer loan lenders in both storefronts
and on the Internet, as well as banks and credit service organizations.
The external competitive factors that Cash America faces from companies like EZCORP are
location, size of the loans comparable to other firms, and speed at which customers can sell
goods in exchange for loans. On its retail level, Cash America also contends with thrift shops
and auctions.
Latest Developments
On November 13, 2014, Cash America completed the separation of its online lending business
that comprised its e‐commerce division. Enova is now an independent public company trading
on the New York Stock Exchange (ENVA/NYSE). The Company retained 20% of ownership in
Enova but plans to divest the entirety of its ownership by November 2016.
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As part of Cash America’s 2014 reorganization, the Company divested its Mexico‐based pawn
operations as well as its Colorado pawn shops. Through these 2014 divestitures, the Company
closed 47 pawn lending locations in Mexico and completely exited the Colorado market. Cash
America plans to concentrate on increasing its profitability in other domestic locations.
Gold continues to have high volatility in current markets. Cash America secures 62.9% of its
pawn loans in gold jewelry. As such, gold’s volatility is affecting the Company and the entire
pawn industry. Cash America adjusts its gold holdings as gold prices change. When gold prices
are low, the Company disposes forfeited gold collateral through retail sales. When gold prices
are high, the Company uses more commercial sales to dispose of gold inventory. Even with this
volatility, Cash America continues to increase its pawn lending activities while decreasing
consumer lending.
PEER ANALYSIS
Cash America provides short‐term loans, consumer loans, and check‐cashing services to
customers in its retail locations and check‐cashing locations. The Company also provides its
customers with the ability to pawn merchandise in exchange for pawn loans. These customers
typically have low‐incomes and poor credit. Cash America’s peer group includes companies
that also offer pawn loans in exchange for consumer merchandise. This group includes EZCORP
Inc., First Cash Financial Services, Inc., eBay, Inc., World Acceptance Corp., and Lending Club.
Cash America’s peer group spans the multiple industries and segments in which the Company
operates. Cash America’s closest peers in the pawn lending industry are EZCORP and First Cash
Financial Services. In its retail segment, the Company’s closest peer is eBay, Inc. Finally, Cash
America’s closest peers in the check cashing and consumer loan industry are World Acceptance
Corp. and Lending Club.
Table 2 provides crucial ratios regarding Cash America and its peers. Cash America’s net
revenue is the second highest behind eBay, which operates globally. Currently, Cash America is
the only company that operates solely within the U.S.; however, the Company’s revenue still
outperforms its other internationally‐operating peers, aside from eBay. Cash America is also
the only company among its peers to pay a dividend with a dividend yield of 0.72%. Further,
the Company has the highest price to earnings (P/E) ratio among its peers, which may indicate
that investors are anticipating higher growth from Cash America in the future.
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Table 2: Peer Analysis
Company
Ticker
Symbol
Stock
Price*
Market
Cap.
(Millions)
P/E P/BV
EV/
EBITDA
EBITDA
Margin
(%)
Debt/E
quity
(%)
Net
Revenue
(Millions)
Cash America
International,
Inc.
CSH
(NYSE)
$27.97 $738 19.3 0.7 8.4 8.6 17.29 $1,100
EZCORP, Inc.
EZPW
(NASDAQ)
$6.17 $327 (6.2) 0.4 4.3 12.6 35.01 $989
First Cash
Financial
Services, Inc.
FCFS
(NASDAQ)
$40.06 $1,115 14.9 2.5 9.1 19.8 56.54 $713
eBay, Inc.
EBAY
(NASDAQ)
$24.44 $29,408 12.6 1.5 5.1 29.2 38.49 $17,900
World
Acceptance
Corp.
WRLD
(NASDAQ)
$26.84 $240 2.2 0.7 3.4 34.9 145.41 $578
Lending Club,
Corp.
LC (NYSE) $13.23 $4,971 (187.6) 4.98 18.8 58.2 367.54 $213
Source: Thompson One
*Price as of Close, September 30, 2015
EZCORP, INC. (EZPW/NASDAQ)
EZCORP, Inc. is a specialty consumer financial services company headquartered in Austin,
Texas. The company offers retail services for previously‐owned merchandise and short‐term
cash solutions including non‐recourse pawn loans, short‐term unsecured loans, and fee‐based
credit services. The company operates 1,358 total locations primarily in the U.S., Mexico, and
Canada. A total of 497 of these locations are U.S. pawn stores. EZCORP’s revenue growth is
steadily declining with 14.3% growth in 2012, 1.61% growth in 2013, and only 0.85% growth in
2014. EZCORP is Cash America’s closest peer based on product and service offerings, but the
two companies differ greatly in size. EZCORP’s market capitalization of $327 million is less than
half of Cash America’s market capitalization of $738 million.
First Cash Financial Services, Inc. (FCFS/NASDAQ)
First Cash Financial Services, Inc. operates 912 retail‐based pawn stores and 93 check cashing
and financial service stores in the U.S. and Mexico. First Cash Financial Services’ primarily
focuses on providing pawn loans with 94.8% of revenues coming from pawn lending activities.
First Cash Financial Services is headquartered in Arlington, Texas but does the majority of its
business in Mexico. Operations in Mexico contribute to 52.5% of total revenues while
operations in the U.S. contribute to 43.9% of total revenues. The company’s revenues have
been steadily growing with 11.6% growth in 2013 and 7.9% growth in 2014. However even
with this steady growth, Cash America generates almost twice the revenue of First Cash
Financial Services.
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eBay, Inc. (EBAY/NASDAQ)
eBay is an online trading community that facilitates the exchange of products and services
between buyers and sellers, and provides secure online payments through a subsidiary. The
company is headquartered in San Jose, California and has a domestic and international
presence. In 2014, eBay’s net revenue was $17.9 billion.
While all of eBay’s revenue comes from retail sales, only 60.3% of Cash America’s revenue
comes from the disposition and sale of merchandise. Both eBay and Cash America sell used
goods, but eBay reaches many more customers because of its large global presence and online
accessibility. Cash America cannot reach as many customers with its domestic physical stores.
eBay’s net revenue is about 17 times Cash America’s net revenue showing eBay’s dominance in
the retail industry. However, Cash America’s P/E ratio is double eBay’s P/E, which may indicate
investors expect higher future growth from Cash America than from eBay.
World Acceptance Corp. (WRLD/NASDAQ)
World Acceptance Corporation is a small loan consumer financial business with 1,320 branches
in the U.S. and Mexico. The company offers short‐term small and medium‐term large
installment loans. In addition, the company markets computer software to related financial
services companies.
Both World Acceptance Corp. and Cash America serve customers with limited access to
sources of consumer credit such as banks, savings and loans, other consumer financial
business, and credit cards. However, Cash America provides customers with more consumer
loan options and has a retail pawn segment that World Acceptance Corporation lacks. Among
Cash America’s peers, World Acceptance Corp. has the lowest P/E ratio of 2.22 compared to
Cash America’s P/E ratio of 19.3. Additionally, World Acceptance Corp. has the highest‐debt‐to
equity ratio of 145.41% compared to Cash America’s debt‐to‐equity ratio of 17.29%.
Lending Club Corporation (LC/NYSE)
Lending Club Corporation provides an online marketplace for connecting borrowers and
investors. The company’s technology platform allows borrowers and investors to engage in
transactions of program loans, which include small business loans, super prime consumer
loans, education and patient finance loans, and personal loans. Investors offer three‐year or
five‐year unsecured personal loans to borrowers on Lending Club’s website. Lending Club’s
market cap of $4.971 billion is four times as large as Cash America’s. However, Lending Club’s
net revenue is only $213 million, a fifth of Cash America’s net revenue. Additionally, Lending
Club has a high debt‐to‐equity ratio of 3.7, which might be explained by Lending Club being a
relatively new company, founded in 2006.
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MANAGEMENT PERFORMANCE AND BACKGROUND
Cash America’s management team has over 70 years of combined experience leading the
Company. The Company’s former President and Chief Executive Officer (CEO), Daniel R.
Feehan, begins his retirement on November 1, 2015. Brent Stuart will succeed Mr. Feehan as
President and CEO of the Company. Mr. Feehan will remain on the Board of Directors and
assume the position of Chairman of the Board. The current Chairman of the Board, Jack
Dougherty, will step down at that time but he will continue to serve on the Board of Directors.
Mr. Feehan plans to stay active in Cash America’s operations during this transitional period.
Return on Invested Capital (ROIC)
Return on invested capital (ROIC) is an important measure of management’s ability to turn
capital into profits. Table 3 shows Cash America’s ROIC over the past four years compared to
the Company’s publicly traded peers. Cash America’s ROIC for years 2011 through 2013 was
recently restated due to the Enova Spin‐off. In 2013 and 2014, Cash America’s ROICs of 7.35%
and 9.80%, respectively, were higher than its closest competitor EZCORP’s ROICs of (2.48%)
and 3.78%.
Table 3: ROIC of Cash America and Peers
Company 2014 2013 2012 2011
Cash America 7.35% 9.80% 8.39% 11.28%
EZCORP (2.48%) 3.78% 16.04% 20.10%
First Cash Financial Services 14.73% 18.89% 20.80% 25.31%
World Acceptance Corp 15.46% 15.24% 15.76% 16.52%
eBay 300.06% 370.02% 1.52% (0.89%)
Lending Club 6.99% 11.20% 3.14% (2.58%)
Peer Average* 8.41% 11.78% 12.83% 14.13%
Source: Thomson One
*eBay not included in peer average
T. Brent Stuart
President and Chief Executive Officer (45)
T. Brent Stuart accepted the role of President and Chief Executive Officer (CEO) effective
November 1, 2015. He has been with Cash America since 2010 filling the roles of a Regional
Vice President, Senior Vice President, and Chief Operating Officer. Before working for Cash
America, Mr. Stuart worked with Fremont Investment and Loan, Nationstar Mortgage,
Novastar Financial, Inc., CitiFinancial, and Norwest Finance. Mr. Stuart graduated from
Southeast Missouri State University with a B.S. in Business Administration.
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Thomas A. Bessant, Jr.
Executive Vice President and Chief Financial Officer (56)
Thomas A. Bessant, Jr. has been with Cash America since 1993 as Vice President of Finance
and Treasurer, Senior Vice President – Chief Financial Officer, and now as Executive Vice
President – Chief Financial Officer. Before working for Cash America, Mr. Bessant worked with
Arthur Anderson & Co. in Dallas, and in the Corporate Banking Division of NCNB Texas, N.A. In
the community, he serves on the boards of Fort Worth’s chapter of the Juvenile Diabetes
Research Foundation (JDRF), Fort Worth Sister Cities, and Shakespeare Festival of Dallas. Mr.
Bessant graduated from Texas Tech University with a B.B.A. in Finance and Accounting, and
received an M.B.A. from Vanderbilt University.
J. Curtis Linscott
Executive Vice President, General Counsel and Corporate Secretary (49)
J. Curtis Linscott joined Cash America in 1995 and has served as Director, Associate General
Counsel, Vice President, Associate General Counsel, and is currently serving as Vice President
General Counsel and Secretary. Before Cash America, Mr. Linscott practiced law with Kelly,
Hart & Hallman, P.C. in Fort Worth, Texas. He graduated from Kansas State University with a
bachelor’s in marketing and received a JD from University of Kansas School of Law. In the
community, Mr. Curtis volunteers at the First United Methodist Church of Arlington and at the
Arlington YMCA.
Victor L. Pepe
Executive Vice President, Chief Marketing and Technology Officer (50)
Victor L. Pepe has been with Cash America since 2014 serving as the Executive Vice President
Chief Marketing and Technology Officer. Before Cash America, Mr. Pepe worked in many roles
at Nationstar Mortgage, JPMorganChase & Co., and EMC Mortgage Corporation (a subsidiary
of Bear Stearns & Co.).
Daniel R. Feehan
Executive Chairman of the Board of Directors (64)
Daniel R. Feehan has been with Cash America since 1988 filling the roles of President and CEO,
Executive Vice President of Finance and Administration, Chief Operating Officer, and Chairman
and Co‐Chief Executive to one of the Company’s subsidiaries. He stepped down from CEO in
November 1, 2015, and is now the Executive Chairman of the Board until October 2016, and
then as the nonexecutive chairman until April 2002. In addition he serves on the boards of
Cash America, RadioShack Corporation, AZZ incorporated, Calloway’s Nursery, Inc.,
Williamson Dickie Mfg. Co, Safe City Commission, and the Lena Pope Home Foundation. Mr.
Feehan graduated from Texas A&M in 1972 with a B.S. in Accounting. Furthermore, he
received the Ernst and Young Entrepreneur of the Year Award in 2006 and the Texas A&M
Mays Business School’s Outstanding Alumni Award.
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Jack R. Daugherty
Member of the Board of Directors (67)
Jack R. Daugherty is the founder of Cash America and has been the Chairman of the Board of
Directors since the Company’s establishment in 1984. Mr. Daugherty will step down from his
position of Chairman of the Board on November 1, 2015 as Daniel Feehan takes on the role.
However, Mr. Daugherty will remain a member of the Board. Before his retirement in 2000,
he was the Company’s Chief Executive Officer. Mr. Daugherty has been a part of the pawn
industry since 1971.
Executive Compensation
Cash America’s Board of Directors sets long‐term goals for the Company’s executive
management team and is responsible for determining executive compensation. In 2014, Cash
America spent approximately $16.4 million on executive compensation, which was an 84%
increase from 2013 with executive compensation of $8.91 million. Figure 7 shows Cash
America’s executive compensation over the past five years.
Figure 7: Annual Management Compensation
Source: MorningStar
SHAREHOLDER ANALYSIS
Cash America has 26.59 million shares of common stock outstanding and declared quarterly
cash dividends of $0.05 last quarter. In January 2015, the Company increased its annual
dividend by 43% to $0.20 annually. In the same date, Cash America also authorized the
repurchase of four million shares and has repurchased 2,332,230 shares or 8% of total shares
outstanding, through the third quarter of 2015.
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Institutional Investors
Table 4 provides the top ten institutional shareholders, which own about 61.01% of the
Company’s outstanding shares. Blackrock is Cash America’s biggest investor with 10.85%
ownership, while Fiduciary Management is a new investor in the Company with a position of
7.11% ownership.
Table 4: Institutional Investors
Holder Name Shares Held Ownership (%) Latest Change Investment Style
BlackRock Institutional
Trust Co.
2,282,659 10.85% (184,006) Index
Earnest Partners, LLC 2,087,599 7.85% 92,193 Core Value
Dimensional Fund
Advisors, LP
1,984,206 7.46% 117,813 Core Growth
The Vanguard Group,
Inc.
1,943,828 7.31% 17,864 Index
Fiduciary
Management, Inc.
1,891,734 7.11% 1,891,734 Core Value
RidgeWorth Capital
Management, LLC
1,476,884 5.55% 1,476,884 Core Growth
Brown Advisory, Inc. 1,289,409 4.85% 61,867 GARP
Investec Asset
Management Ltd.
987,894 3.72% 1,733 Core Growth
Denver Investment
Advisors, LLC
911,996 3.43% (10,842)
Aggressive
Growth
Brandywine Global
Investment
Management, LLC
766,501 2.88% (65,936) Deep Value
Source: Bloomberg October 4, 2015
Inside Stockholders
Cash America’s top five insider stockholders own 2.29% of the Company’s total shares
outstanding, while the Company’s executive chairman and former CEO, Daniel, R. Feehan, is
the largest insider stockholder with 404,585 shares. Table 5 shows the five individual
stockholders with the greatest number of shares. Total insider ownership increased by 8.89%
in 2014 compared to 2013 holdings.
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Table 5: Individual Holders
Holder Name Position Shares Held Ownership
Feehan, Daniel R. Executive Chairman 404,585 1.52%
Stuart, T. Brent CEO 56,170 0.21%
Hunter, B. D. Member of Board of Directors 51,881 0.20%
Pepe, Victor L.
Chief Marketing and
Technology Officer
50,441 0.19%
Bessant Jr., Thomas A. CFO 45,265 0.17%
Source: Bloomberg October 4, 2015
Short Position
The short interest ratio provides a significant indicator of market sentiment. After dividing the
short interest by the average daily trading volume, investors can make a decision on the
number of days they want to short a stock if the price of a stock increases. Bearish sentiment
occurs when a short ratio is equal to or greater than five. Cash America has a short ratio of 7.2
days. Therefore, investors are bearish on the Company’s future stock prices.
RISK ANALYSIS AND INVESTMENT CAVEATS
Cash America’s business strategy exposes the Company to regulatory, operational, and
financial risks. Operational risks include reputational risk, the price of gold, unsecured
consumer loan credit risk, and acquisition integration. Financial risks include credit risk and
liquidity risk.
Regulatory Risks
The government heavily enforces regulations in the pawn industry. Federal laws require
truthful advertising and marketing practices, fair financial practices in lending, loan servicing
and debt collection, and protection of sensitive consumer information. At the Federal level,
companies have to observe the Patriot Act, Truth‐in‐Lending Act, Bank Secrecy Act and other
Internal Revenue Service regulations. If shops handle firearms, they must also follow the
Brady Handgun Violence Prevention Act. Inability to abide to regulations causes a store to lose
its license.
At the state level, pawn establishments must obtain licenses. Failure to adhere to state laws
can cause a company to lose its license. States regulate pawn shops’ service charges, interest
rates, minimum and maximum terms of a pawn loan, the content and format of the pawn
ticket, and the length of time after a loan default that a pawn lending location must hold a
pawned item before disposing of it.
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Operational Risks
Reputational Risk
Reputational risk is the risk of loss resulting from damages to the Company’s reputation. The
public can have a negative perception of the Company because of its consumer loan business.
People view high interest rates for payday loans negatively, as some perceive that these loans
take advantage of underprivileged consumers. Public perception is heavily swayed by media
reports that criticize the pawn loan industry for excessive interest rates when compared to
interest rates issued by banks and other traditional financial institutions. Negative views of
both the Company and other firms in the pawn loan industry could inhibit demand from
customers.
Price of Gold
The price of gold affects Cash America greatly because 62.9% of all collateral held is gold
jewelry. As a consequence, when gold prices decrease, Cash America makes less profit on its
gold items and customers are less likely to pawn their gold collateral. Gold prices have been
extremely volatile in recent years. From 2012 to 2013, gold prices decreased by 15.42% and
from 2013 to 2014, gold prices decreased by an additional 10.34%.
Unsecured Consumer Loan Credit Risk
Unlike pawn loans, consumer loans are unsecured, which means the loans are not obtained
through property as collateral. The Enova spin‐off greatly decreased the Company’s revenue
from consumer loans. Prior to the Enova spin‐off in 2013, consumer loans contributed to
50.9% of total revenues. In 2014, consumer loans contributed to only 8.9% of total revenues
and consumer loan loss provision as a percentage of profit from consumer loan fees was
31.7%. To minimize consumer loan losses, Cash America uses underwriting models to analyze
default risk. If Cash America is unable to accurately predict credit risk through its underwriting
processes, the Company could suffer from an increase in credit loss due to loan defaults.
Acquisition Integration
Cash America grows in part by acquiring other pawn shops. The acquisition process is
expensive and timely. Even when the Company completes an acquisition, it takes time to
integrate the new acquisition into the Company. If Cash America does not receive a timely
profit from the acquisition, the Company will face profit losses.
Financial Risks
Credit Risk
Credit risk occurs when a borrower is unable to pay back a loan. If future cash flows will not
cover the loan, credit risk increases. Cash America is not heavily leveraged; therefore, it is not
at risk for default.
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As shown in Table 6, the debt‐to‐equity ratio, debt to earnings before interest taxes
depreciation and amortization ratio, and interest coverage ratio is below the peer average.
From 2014 to 2013, the Company’s interest coverage ratio decreased by 2.9% to its current
ratio of 2.1% suggesting it may be able to pay interest expenses on its outstanding debt.
Table 6: Leverage Ratios
Company
Debt/Equity
Ratio
Debt/EBITDA
Ratio
Interest Coverage
Ratio
Cash America 17.29% 2.0% 2.1%
EZCORP 35.01% 2.5% 2.9%
First Cash Financial Services 56.54% 1.8% 7.6%
World Acceptance Corp. 145.41% 2.3% 8.7%
eBay 38.49% 1.5% 12.8%
Lending Club 367.54% 8.5% 0.9%
Peer Average 110.05% 3.1% 5.8%
Source: Thomson One October 6, 2015
Liquidity Risk
Liquidity allows a company to quickly sell its assets and securities to fulfill its short‐term
financial demands. The Company uses the current ratio to assess its liquidity by computing the
ratio of current assets to current liabilities. Cash America has a current ratio of 6.5, which is a
12% increase from 2013. The Company also uses its quick ratio of 4.8 to assess liquidity. The
quick ratio describes the current assets available, excluding inventory, to cover current
liabilities. Cash America’s high current and quick ratios show its assets are capable of covering
its liabilities.
FINANCIAL PERFORMANCE AND PROJECTIONS
To project Cash America’s future financial performance, we made assumptions regarding the
Company’s operating, investing, and financing activities. Our assumptions used information
provided in Cash America’s SEC filings, quarterly conference calls, and other data sources,
along with management guidance.
Operating Activities
To forecast revenues, we used a regression model combined with a terminal growth rate
based off of assumptions from the Company’s SEC filings. Our model used six key independent
variables and revenues as the dependent variable. Independent variables included seasonality
in the second and fourth quarters, gold prices, gas prices, unemployment, and property, plant,
and equipment. The Company’s operations are subject to seasonal fluctuations from tax
refunds in the first quarter and holiday spending in the fourth quarter. Gold prices greatly
impact revenues because 62.9% of collateral held is gold jewelry.
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Gas prices and unemployment served as macroeconomic factors influencing Cash America’s
customers’ discretionary income. We also used net property, plant, and equipment data as a
proxy for new stores and acquisitions. Additionally, we used two dummy variables to account
for non‐recurring events including the Enova spin‐off and the drop in consumer loans. These
events had a significant impact on Cash America’s past revenues but will not affect revenues
moving forward.
Investing Activities
Cash America’s investing activities revolve around the Company’s focus on acquisitions. Cash
America uses acquisitions to enter new locations and to increase its number of stores, which
makes capital expenditures a key revenue driver. We used a historical average of property,
plant, and equipment, along with a quarterly growth rate of 2.23% to forecast capital
expenditures.
Financing Activities
Cash America’s financing activities are heavily influenced by stock repurchases and dividends.
The Company has a surplus of cash on hand to aggressively buy back stock and raise
dividends. In January 2015, Cash America raised its annual dividend from $0.16 a share to
$0.20. We assumed dividends would remain at $0.20 a share annually. We also assumed the
Company would continue to repurchase its own shares.
SITE VISIT
On October 9, 2015, our analyst team visited Cash America’s headquarters in Fort Worth,
Texas to meet with Mr. Dee Littrell, the Company’s Director of Investor Relations. First, our
team had a question and answer session with Mr. Littrell. Following the session, Mr. Littrell
took us to a Cash America store to see the pawn shop industry in action firsthand.
Question and Answer Session
Mr. Littrell was an excellent source of knowledge about the Company and was able to answer
many questions. Through our conversation, we gained a great understanding of the
Company’s goals, its future restructuring plans due to the recent ENOVA spin‐off, and other
specifics about the Cash America stores.
When asked about the Company’s competition, Mr. Littrell identified “mom‐and‐pop” shops
as Cash America’s main competitors. The differences in mom‐and‐pop shops compared to
Cash America are mom‐and‐pop shops usually have random inventory items, sell inventory at
high prices, and make lower priced pawn loans. The Company is able to sell items at less
expensive prices and loan more aggressively because it has a line of credit, which mom‐and‐
pop shops do not have.
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When asked about the Company’s growth initiatives, Mr. Littrell outlined Cash America’s
future acquisition plans. The Company does not plan to add any stores in 2015 because of
management transitions and the continued Company restructuring from the Enova spin‐off.
Instead, management is focusing on right‐sizing the Company, growing business, and
transitioning from e‐commerce. The Company estimates 15‐25 new stores in 2016, and 25‐50
new stores within the next three years.
Visiting Mr. Littrell soon after Cash America’s management recent changes provided our
group with important insights. Brent Stuart, the former COO, is stepping up to take the
position of CEO. Former executive chairman, Mr. Daugherty, will remain on the Board. Mr.
Littrell indicated the Company strategy will remain the same because Mr. Feehan will be the
Executive Chairman until October 31, 2016 and remain as a non‐Executive Chairman until
October 31, 2020.
Finally, our conversation with Mr. Littrell revealed Cash America’s relationships with its
customers and how pawn shops are considered an important part of the community. Pawn
shops help people in the community as well as adapt inventory to the local culture. Cash
America will never turn down a customer unless it believes the collateral was stolen. The most
important aspect in its customers is their credit‐worthiness.
Store Visit
After answering our questions, Mr. Littrell took us to a nearby Fort Worth Cash America shop
where we were able to see the behind the scenes of the pawn business, view the collateral
storage, and meet the store manager. We began by walking around the store examining the
retail merchandise and the store’s prices. Some of the merchandise included guitars, laptops,
bicycles, lawn mowers, and jewelry. Then, Mr. Littrell took us to the back of the store where
customers’ property is held as collateral. He explained that the shop’s very organized
inventory tracking system increases efficiency. At the end, we had the opportunity to talk to
the store manager and ask additional questions. After visiting the shop, we received a better
understanding of pawn shop transactions.
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Site Visit Photo
From Left: Marcy Applebaum, Casey Lynch, Ilyse Bender, Jacob Pritikin, and Dee Littrell
INDEPENDENT OUTSIDE RESEARCH
Our team used many outside sources to put together a knowledgeable report on Cash
America. We used Thomson One, Bloomberg, Yahoo! Finance, MorningStar and IBIS World for
general data. For specific information pertaining to Cash America, we used the Company’s SEC
filings, annual and quarterly reports, and investor presentations. To get a better sense of the
Company’s peers, we utilized competitors’ websites as well as the investor presentations and
SEC reports on these companies.
At our site visit, Mr. Dee Littrell, Cash America’s Director of Investor Relations, was an
excellent resource. He was able to answer all of our questions we had raised based on our
research and beyond. Mr. Littrell informed us about the upcoming change in management in
which T. Brent Stuart will serve as the Company’s new President and Chief Executive Officer
on November 1, 2015. Mr. Littrell also gave us a better vision of Cash America’s focus for
future growth, which will be centered on establishing 25 to 50 new stores in the next three
years. Furthermore, visiting an actual Cash America store in Fort Worth, Texas provided better
clarification on how pawn shops function. We had the opportunity to not only walk around
the front of the store, but to also go behind the scenes and see where collateral is stored and
talk to the store employees.
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In addition to our site visit in Fort Worth, Texas, our analyst team visited another Cash
America Pawn shop and a mom‐and‐pop pawn shop in New Orleans, Louisiana to compare
the two competitors. We decided to visit a mom‐and‐pop shop because these pawn shops are
what Cash America considers its greatest competition. Our visits helped us see why Cash
America is the market share leader in the pawn industry.
As a test, we presented a brand new 2015 Macbook laptop to each shop to see how much it
could be pawned for. At the mom‐and‐pop shop, the employees were unwilling to provide a
price for the laptop. They told us loan amounts depended on the amount of money customers
needed and refused to provide us with information regarding the items value. The shop was
hectic, less organized, and its items appeared not as well taken care of. The shop was
unwilling to tell us about a system they used for valuing items, but was eager to tell us about
how mom‐and‐pop pawn shops are more attentive to customer needs than corporate‐owned
pawn shops. The manager even suggested we visit a Cash America location to further develop
our research.
In comparison, at the New Orleans Cash America Pawn, the manager immediately assessed
the computer, plugged in data like the items serial number into its system, and provided a
pawn loan estimate of $700 for the brand new laptop. The manager explained that this pawn
loan estimate was flexible depending on how much money we wanted from the loan. He also
explained the store’s 20% interest policy. Furthermore, the manager mentioned if the
computer was to be forfeited and sold in the store, it would sell for around $1,200, which is
less than a third of its original price. In contrast to the Fort Worth Cash America shop, the New
Orleans shop’s most sold items were jewelry and guns, and the manager remarked that
jewelry is its top‐selling item. The additional store visits helped add depth to our research on
the pawn industry and provided insight into how family‐owned stores differ from company‐
owned stores.
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ANOTHER WAY TO LOOK AT IT
ALTMAN Z‐SCORE
Edward Altman originally created the Altman Z‐score in 1968 to evaluate the bankruptcy risk
for companies over the next two years. Altman calculated the Z‐Score by adding five different
financial ratios and assigning weights to adjust for additional financial risk. Within the four
different zones, a company is safe when bankruptcy risk is low and the Z‐Score is greater than
three. When the Z‐Score is between 2.7 and 2.99, a company should be cautious of
bankruptcy, but risk is minor. A Z‐Score between 1.8 and 2.7 implies moderate bankruptcy
risk. When the Z‐Score is less than 1.8, the company is headed toward a financial catastrophe
Table 7 shows Cash America’s historical Z‐Scores over the last five years. In 2014, Cash
America recovered from its financial distress of 2013. Cash America’s most recent Z‐score is
in the safe zone due to the Company’s restructuring after the Enova spin‐off.
Table 7: Cash America’s Historical Z‐Scores
Year 2010 2011 2012 2013 2014
Z‐Scores 3.51 3.61 2.34 1.71 3.23
Source: Cash America 10K filings
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PETER LYNCH EARNINGS MULTIPLE VALUATION
Peter Lynch, well known for his work as manager of the Magellan Fund at Fidelity
Investments, uses multiple methods to evaluate stocks. The Peter Lynch chart compares a
theoretical price of 15 times the company’s earnings per share to the stock’s actual price.
This theoretical price is considered the earnings line and is used as a benchmark to decide if
the stock price is a good value. A stock is a good buy if the stock price is below the earnings
line. However, if the stock price is far above the earnings line, Lynch would sell the stock.
Figure 8 shows Cash America’s five‐year history of stock prices and earnings. As of November
2, 2015, Cash America had a stock price of $34.76, which lies above the earnings line.
Therefore, Peter Lynch would not consider CSH a buy.
Figure 8: Cash America’s 5‐year Stock Price and Earnings Line
Source: Bloomberg November 2, 2015
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WWBD?
What Would Ben (Graham) Do?
Ben Graham is very influential to investors due to his value investing, which focuses on
undervalued stocks and eight identifying criteria. The first six criteria decide if a company is
underpriced. The last two criteria examine a company’s growth consistency and potential. A
company is attractive, according to Graham, if it meets four or more of the criteria.
As of November 2, 2015, Graham would label Cash America as relatively attractive because
the Company meets four of the eight criteria. Cash America meets the hurdles of having an
earnings to price yield two times the yield on a ten‐year treasury note, a stock prices less
than 1.5 times the book value per share of the Company, an amount of total debt less than
book value, and a current ratio of two or greater. The Company fails the remaining hurdles of
a price to earnings ratio (P/E) ratio of half of the stocks highest P/E ratio in the past five
previous years, a dividend yield that is half the yield of a ten‐year treasury note, an earnings
growth of 7% or higher over the past five years, and a stability in growth of earnings.
However, because Cash America only meets half of the criteria, Ben would not have
complete confidence in investing in the Company. Cash America does not meet either of Ben
Graham’s tests for growth consistency and potential.
Figure 9: Ben Graham Dial
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Earnings per share (ttm) 1.77$ Price: 34.76$
Earnings to Price Yield 5.10%
10 Year Treasury (2X) 4.32%
P/E ratio as of 12/30/10 4.5
P/E ratio as of 12/30/11 4.9
P/E ratio as of 12/30/12 5.0
P/E ratio as of 12/30/13 5.8
P/E ratio as of 12/30/14 (10.2)
Current P/E Ratio 19.6
Dividends per share (ttm) 0.15$ Price: 34.76$
Dividend Yield 0.43%
1/2 Yield on 10 Year Treasury 1.08%
Stock Price 34.76$
Book Value per share as of 9/30/15 38.59$
150% of book Value per share as of 9/30/15 57.89$
Interest‐bearing debt as of 9/30/15 206,239$
Book value as of 9/30/15 1,024,169$
Current assets as of 9/30/15 687,305$
Current liabilities as of 9/30/15 99,250$
Current ratio as of 9/30/15 6.9
EPS for year ended 12/30/14 (2.22)$
EPS for year ended 12/30/13 2.96$
EPS for year ended 12/30/12 3.42$
EPS for year ended 12/30/11 4.25$
EPS for year ended 12/30/10 3.67$
EPS for year ended 12/30/14 (2.22)$ ‐175%
EPS for year ended 12/30/13 2.96$ ‐13%
EPS for year ended 12/30/12 3.42$ ‐20%
EPS for year ended 12/30/11 4.25$ 16%
EPS for year ended 12/30/10 3.67$
Stock price data as of November 2, 2015
No
CASH AMERICA INTERNATIONAL INC. (CSH)
Ben Graham Analysis
Hurdle # 1: An Earnings to Price Yield of 2X the Yield on 10 Year Treasury
Yes
Hurdle # 2: A P/E Ratio Down to 1/2 of the Stocks Highest in 5 Yrs
No
Hurdle # 3: A Dividend Yield of 1/2 the Yield on 10 Year Treasury
No
Hurdle # 4: A Stock Price less than 1.5 BV
Yes
Hurdle # 5: Total Debt less than Book Value
Yes
Hurdle # 6: Current Ratio of Two or More
Yes
Hurdle # 7: Earnings Growth of 7% or Higher over past 5 years
No
Hurdle # 8: Stability in Growth of Earnings
31. Cash America International (CSH)BURKENROAD REPORTS (www.burkenroad.org)November 2, 2015
31
CASH AMERICA INTERNATIONAL INC. (CSH)
Quarterly and Annual Earnings
In thousands
For the period ended 2012 A 2013 A 2014 A31‐Mar‐15 A30‐Jun‐15 A30‐Sep‐15 A31‐Dec‐15 E 2015 E30‐Mar‐16 E30‐Jun‐16 E30‐Sep‐16 E31‐Dec‐16 E 2016 E
Revenue
Pawn Loan Fees and Service Charges300,929$ 311,799$ 329,368$ 77,313$ 76,899$ 82,435$ 92,074$ 328,721$ 79,836$ 66,527$ 76,400$ 75,016$ 297,780$
Proceeds from dispostion of merchandise703,767 595,439 660,006 172,213 138,703 136,666 175,832 623,414 152,462 127,045 145,901 143,258 568,667
Consumer loan fees121,892 113,211 97,674 20,319 19,311 20,543 33,431 93,604 28,988 24,155 27,740 27,238 108,121
Other check cashing royalties and fees12,855 10,037 7,648 1,917 1,551 1,546 2,964 7,978 2,570 2,142 2,459 2,415 9,586
Total revenue1,139,443 1,030,486 1,094,696 271,762 236,464 241,190 304,301 1,053,717 263,856 219,868 252,501 247,927 984,153
Cost of revenue
Disposed Merchandise478,179 410,613 474,137 119,884 98,060 98,881 126,191 443,016 109,419 91,178 104,711 102,814 408,121
Consumer loan loss provision29,225 33,359 31,009 4,787 4,413 7,349 5,679 22,228 4,924 4,103 4,712 4,627 18,367
Net revenue632,039 586,514 589,550 147,091 133,991 134,960 172,430 588,472 149,513 124,587 143,078 140,487 557,665
Expenses
Operations and Administration480,256 469,218 490,465 116,338 113,306 109,875 135,414 474,933 117,416 97,841 112,363 110,328 437,948
Depreciation and amortization62,156 56,128 60,942 14,519 14,559 13,700 13,761 56,539 14,076 14,386 14,703 15,027 58,192
Total expenses542,412 525,346 556,583 130,857 127,664 123,469 149,175 531,165 131,492 112,227 127,066 125,355 496,140
Operating income (loss)89,627 61,168 32,967 16,234 6,327 11,491 23,256 57,308 18,021 12,360 16,012 15,132 61,525
Interest expense(29,134) (36,319) (26,520) (3,644) (3,557) (3,448) (3,838) (14,487) (3,838) (3,838) (3,838) (3,838) (15,354)
Interest income21,143 19,862 7,647 2 5 53 3 63 3 2 2 2 10
Foreign currency transaction gain (loss)29 17 113 39 (7) 32
Loss on extinguishment of debt(607) (22,553) (607) (607)
Equity in loss of unconsolidated subsidiary(295) (136)
Gain on disposition of equity securities126 1,099 1,225
Income (loss) before income taxes81,370 43,985 (8,346) 12,757 3,260 8,096 19,420 43,533 14,185 8,524 12,176 11,296 46,181
Provision for income taxes46,275 (15,505) 2,041 4,912 1,189 3,058 7,083 16,242 5,174 3,109 4,441 4,120 16,843
Income from continuing operations35,095 59,490 (10,387) 7,845 2,071 5,038 12,337 27,291 9,012 5,415 7,735 7,176 29,338
(Loss) income from discontinued operations before income taxes66,569 83,346 109,025
Net loss (income) income attributable to the non controlling interest5,806 (308)
Net income (loss) Attributable to Cash America Int.107,470$ 142,528$ 98,638$ 7,845$ 2,071$ 5,038$ 12,337$ 27,291$ 9,012$ 5,415$ 7,735$ 7,176$ 29,338$
Net income (loss) per common share:
Basic
Income from continuing operations3.64$ 4.97$ (0.36)$ 0.27$ 0.08$ 0.19$ 0.45$ 1.03$ 0.34$ 0.21$ 0.30$ 0.28$ 1.17$
Income from discontinued operations(1.42)$ (1.83)$ (2.38)$
Adjustment for non‐recurring charges0.01$ 0.02$ 0.49$ (0.00)$ (0.01)$
Net income (loss) excluding non‐recurring charges2.23$ 3.16$ (2.24)$ 0.27$ 0.07$ 0.19$ 0.45$ 1.03$ 0.34$ 0.21$ 0.30$ 0.28$ 1.17$
Diluted
Income from continuing operations3.42$ 4.66$ (0.36)$ 0.27$ 0.08$ 0.19$ 0.45$ 1.02$ 0.34$ 0.20$ 0.30$ 0.28$ 1.16$
Income from discontinued operations(1.33)$ (1.72)$ (2.34)$
Adjustment for non‐recurring charges0.01$ 0.02$ 0.48$ (0.00)$ (0.01)$
Net income (loss) excluding non‐recurring charges2.09$ 2.96$ (2.22)$ 0.27$ 0.07$ 0.19$ 0.45$ 1.02$ 0.34$ 0.20$ 0.30$ 0.28$ 1.16$
Weighted average shares outstanding:
Basic 29,514 28,657 28,901 28,692 27,326 26,539 27,326 26,614 26,614 26,237 25,868 25,508 25,156
Diluted 31,452 30,613 29,341 28,780 27,508 26,773 27,526 26,814 26,814 26,437 26,068 25,708 25,356
2015 E2016 E
