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FirstCash (FCFS) Ratings Affirmed by Moody's, Outlook Stable

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FirstCash’s (FCFS - Free Report) corporate family and long-term senior unsecured ratings have been affirmed at Ba1 by Moody's Investors Service, a rating arm of Moody's Corporation (MCO - Free Report) . Moreover, the rating outlook remains stable for the company.

Also, the ratings agency has assigned Ba1 rating to $400 million of senior unsecured notes, being issued by the company, with maturity in 2028.

Ratings Rationale

The affirmed ratings are reflective of FirstCash's stable and strong financial fundamentals. The company witnessed consistent bottom-line strength, driven by the strong financial performance of its pawn lending and retail merchandise businesses. Though Moody's is of opinion that the company's profitability might remain under pressure over the next few quarters due to soft loan demand and a decline in inventories, leading to a lower level of merchandise sales, the ratings agency expects FirstCash's profitability to be strong over the next 12-18 months.

FirstCash displays a strong capital position, with tangible common equity to tangible managed assets of 18.7% as of Jun 30, 2020. Moody's expects the company to maintain strong capitalization over the next 12-18 months. Also, the issuance of senior unsecured notes is expected to further bolster FirstCash's liquidity profile.

The ratings affirmation also reflects the benefit to creditors, resulting from the company's geographic diversification. Though Moody’s feels that the company's efforts to expand in the Latin America market may be too rapid, FirstCash's successful track record of opening, acquiring and integrating pawn stores while maintaining moderate leverage and solid profitability can offset this risk.

The stable outlook reflects Moody's expectation that the company's limited leverage will be conservatively managed, and it will maintain solid profitability over the next 12-18 months as it continues to grow.

FirstCash’s ratings are expected to be upgraded if the company maintains a strong tangible equity position as well as solid profitability, and notably enhances its liquidity profile. On the flip side, per Moody’s, the ratings could be downgraded if the company either experiences a significant reduction in profitability or increases leverage, resulting in a significant deterioration in interest coverage.

Shares of FirstCash have lost 25.9% so far this year compared with a 26.4% decline of the industry it belongs to.

 

 

Currently, the company carries a Zacks Rank #4 (Sell).

Some better-ranked companies in the same space are Enova International, Inc. (ENVA - Free Report) and Mr. Cooper Group Inc (COOP - Free Report) , both sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Enova moved up significantly for the current year in the last 60 days. The company’s share price has lost 30.7% in the past year.

Mr. Cooper witnessed an 85% upward earnings estimate revision for the current year in the last 60 days. Its share price has gained 101.9% in the past year.

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