Advance America Stock Report: Payday Loan Company is Prosperous
Payday loan company Advance America (NYSE: AEA) will report fourth-quarter 2006 financial results on Feb. 7.
What analysts say, according to The Motley Fool:
Buy, sell, or waffle? Of the nine analysts covering Advance America, five say hold, three say buy, and one defaults with a sell.
Revenues. Revenues for this guaranteed payday loan company are expected to jump to $187.4 million, a 43% increase over last year’s $130.7 million.
Earnings. Profits are expected to grow 15%, to $0.23 per share, with a 13% increase forecast for full-year results.
What management says:
Specializing in cheap payday loans, Advance America has been able to insulate itself from some of the market vagaries competitors who also have exposure to pawn shops and other ancillary services have experienced.
Cash America, for example, recently reported it raised its loan loss provision to nearly $27 million, or more than 37% of cash advance fees, perhaps in expectation of higher defaults on online payday loans granted over the Internet. Advance America saw its own provision for doubtful accounts rise to 22.7% of revenues in the third quarter from 21% the previous year.
The payday cash advance lender notes that its receivables tend to be seasonal and are lowest at the end of the first quarter, matching when people receive their income tax refunds, and highest at the end of the fourth quarter. Therefoes, expect Advance America’s receivables to be higher with this report.
What management does:
Advance America operates under what it calls its “standard business model” whereby it is the party responsible for qualifying borrowers, setting terms and conditions for loans, advancing money to approved borrowers, and assuming the risk of default. Previously, the company had often operated under what it called an “agency business model,” whereby third-party lending institutions performed many of those functions.
In 2005, changes in FDIC regulations precluded that from happening anymore, so all of Advance America’s 2,745 centers operate under the standard business model. It is creating efficiencies for the cash advance online lender, which are helping to boost the bottom line.
Center gross profits, however, feel the pinch of new center openings, which tend to be more costly until they become established. In the third quarter, the company had opened 91 new stores.
One Fool says:
This Motley Fool Inside Value selection has turned around its operations in an industry with an unseemly underbelly. Despite the public and vocal attacks on the instant cash loan business and Advance America in particular, the company has been performing remarkably well and is still valued at less than many of its competitors even though it is the largest of the payday lenders.
With the lowest forward valuation, an increasing presence in this country, and a strong balance sheet, Advance America still seems a good buy at prices still 25% under the annual highs.