Signs Of Progress At First Cash Financial, But The Model's Changing

While it's a long-term position for me, my feelings about First Cash Financial (NASDAQ:FCFS) have been relatively tepid of late. The impact of a weaker Mexican peso hasn't concerned me much on a long-term basis, but I've been more troubled by First Cash's struggles to generate meaningful growth in its U.S. business and/or wring noticeable margin leverage out of its recent consolidation efforts.

First Cash is still in a tricky position. Trends in the peso and gasoline prices had been moving in a company-friendlier direction, but that has shifted more recently. On a positive note, consumer trends in Mexico remain strong and there are long-awaited signs of improvement in the U.S. business that give a little hope for the coming quarters.

The merger with Cash America (NYSE:CSH) is a major swing factor, though, and one that I believe does add long-term value. The key there is "long term." Overweighting back to the U.S. market is going to meaningfully slow the internal growth rate for a few years, but the greater cash flow generated by this larger U.S. store footprint can, in turn, self-fund a stronger long-term expansion into higher-growth Latin American markets.

My fair value of $53.50 doesn't offer a lot of near-term upside, but a further strengthening of the U.S. business would represent upside, and I'm pleased with how the Latin American business continues to develop.

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Signs Of Progress At First Cash Financial, But The Model's Changing