Most sectors have grappled amid various headwinds, one of which was the incessant rate hikes by the Fed to curb the stubbornly high inflation. Even though there are anticipations of a rate hike pause, a rate hike cut may be far away.
Generally, finance entities like banks, insurance companies, brokerage firms, and money managers benefit from higher interest rates. Against this backdrop, let us explore some financial stocks, EZCORP, Inc. (EZPW) and Regional Management Corp. (RM), which could be solid buys now.
Coupled with the banking sector jitters, the sky-high inflation, incessant rate hikes by the Fed, and the U.S. debt default crisis could aggravate the turbulence in the macroeconomic environment. In addition, the current economic scenario is feared to trigger a recession later in the year.
The Federal Reserve has once again hiked interest rates by 25 basis points, which brings the federal funds rate to a range of 5% to 5.25%. Even though the Fed has opened the doors of a rate hike pause, slashing it could be unlikely anytime soon since inflation remains well above the target range of 2%.
However, there are some industries, like the financial services industry, whose revenues positively correlate with the rising interest rates. Given the high-interest-rate environment, the borrowers would have to pay high interest, which could drive the revenues of financial services.
The financial services market is expected to grow to $33.31 trillion in 2026. The market is then expected to grow at a CAGR of 6.3% from 2026 and reach $45.15 trillion in 2031.
Moreover, financial technology, or ‘Fintech,’ is breaking down barriers to financial services and delivering value to consumers, small businesses, and the economy.
Considering the industrial tailwinds and the volatile macroeconomic scenario, it would be an opportune time to invest in quality financial stocks EZPW and RM now.
EZCORP, Inc. (EZPW)
EZPW provides pawn services. The company operates through three segments: U.S. Pawn, Latin America Pawn, and Other Investments. It offers pawn loans collateralized by tangible personal property, jewelry, consumer electronics, tools, sporting goods, and musical instruments.
During the quarter, EZPW repurchased $3.9 million worth of EZCORP shares as part of the up to $50 million share repurchase program announced in the second quarter of the fiscal year 2022.
In terms of forward EV/EBITDA, EZPW’s 6.51x is 36.5% lower than the 10.25x industry average. Its forward EV/Sales multiple of 0.83 is 56.8% lower than the 1.91 industry average.
EZPW’s revenue has grown at 4.1% and 4.7% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 15.3% and 22.2% CAGRs over the past three years, respectively.
EZPW’s total revenues for the fiscal second quarter that ended March 31, 2023, increased 19.7% year-over-year to $258.42 million. Its gross profit rose 15.7% over the prior-year quarter to $149.18 million.
The company’s operating income increased 10.4% year-over-year to $26.73 million. Its adjusted net income increased 1.8% year-over-year to $17 million. Also, its adjusted earnings per share came in at $0.23, representing an increase of 4.5% year-over-year.
Analysts expect EZPW’s revenue for the fiscal third quarter ending June 2023 to increase 13.2% year-over-year to $244.33 million. Its EPS for the fiscal fourth quarter ending September 2023 is expected to increase 30% year-over-year to $0.20. It surpassed the consensus revenue estimates in each of the trailing four quarters.
Over the past year, the stock has gained 21.9% to close the last trading session at $8.75.
EZPW’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value and Quality. It is ranked #2 in the 49-stock Consumer Financial Services industry.
To see the additional ratings of EZPW for Growth, Momentum, Stability, and Sentiment, click here.
Regional Management Corp. (RM)
RM, a diversified consumer finance company, provides various installment loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies, and other lenders. It offers small and large installment loans, retail loans, and other retail products.
In terms of forward non-GAAP P/E, RM’s 5.31x is 35.2% lower than the 8.19x industry average. Its forward Price/Sales multiple of 0.46 is 76.1% lower than the 1.94x industry average.
RM’s revenue has grown at 12.5% and 13.6% CAGRs over the past three and five years, respectively. Moreover, its net income and total assets have grown at 3% and 16.4% CAGRs over the past three years, respectively.
For the fiscal first quarter that ended March 31, 2023, RM’s total revenue increased 12% year-over-year to $135.38 million. Its net income and net income per share stood at $8.69 million and $0.90. The company’s total revenue yield (average net finance receivables) increased 18% from the prior-year quarter to $1.69 billion.
Analysts expect RM’s EPS for the fiscal third quarter ending September 2023 to increase 46.7% year-over-year to $1.56. Its revenue for the same quarter is expected to increase 3.2% year-over-year to $135.62 million. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock gained marginally intraday to close the last trading session at $25.90.
RM’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Stability and Quality. It is ranked first in the same industry.
Click here to access the POWR Ratings of RM for Growth, Momentum, and Sentiment.
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EZPW shares were trading at $8.71 per share on Tuesday morning, down $0.04 (-0.46%). Year-to-date, EZPW has gained 6.87%, versus a 8.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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