First Cash Financial to exit auto lending business

The company expects the business to be sold or liquidated over the next 12 months. As a result, the company plans to record a noncash charge of up to $1.75 per share as discontinued operations in the quarter ended Sept. 30.

However, First Cash expects to increase its full-year earnings guidance as a result of the discontinuation of the business.

The pawnshop operator and payday lender said proceeds from the sale or liquidation of the Auto Master business will be used to further strengthen its balance sheet.

"Our core pawn business is tremendously profitable and continues to grow at record levels, while Auto Master has remained a comparatively time-consuming and costly activity and far too demanding of our key management time and resources," said Rick Wessel, chief executive, in a statement.

The plan for new pawn and payday lending store openings will remain focused on Mexico, the company said, where it anticipates opening 70 to 80 new stores in 2009.

"Rather than continue to focus considerable time and money on this unit, First Cash has decided to cut their losses," said Jefferies & Co. analyst Richard Shane Jr., who maintained a "Hold" rating on First Cash's shares. "We believe this was a difficult but sound management decision."

Roth Capital Partners analyst Elizabeth Pierce, meanwhile, maintained a "Buy" rating and $21 target price on the stock, noting that the company is well positioned to weather economic challenges.

"We remain positive about the company's fundamentals as we believe the continued strength in the domestic pawn business and the growth potential in the Mexican pawn operations position it for sustainable, long-term earnings growth," she said.