My Earnings Forecast for Nicholas Financial

This Thursday, little Nicholas Financial (NICK) will report earnings for their fiscal second quarter. It’s hard to say what Wall Street’s consensus is because, well…no one follows NICK. As far as I know, I’m the only one.

Here’s my take: The good news is that the story is still the same. NICK’s business has improved dramatically since the credit crisis. The company continues to make money and the quality of their portfolio is a lot better.

Here’s my estimate for this earnings report:

Receivables: $245 million
Gross yield: 25%
Interest Expense: 2.5%
Provision for Credit Losses: 2.8%
Pre-Tax Yield: 10%
EPS: 30 cents or more

Those are just guesses but I doubt I’m too far off. Even if I’m off by a bit, the fundamental story is the same. The portfolio is growing slowly. The quality of the portfolio is improving. The yield spread between what they borrow and what they lend is gigantic.

Last quarter they made 29 cents per share and the quarter before that, they made 28 cents per share. For this calendar year (which is not the same as NICK’s fiscal year), they should make about $1.20 per share, maybe $1.25 per share.

Even at the current higher stock price of $10, NICK is still very inexpensive. If they earn $1.20 per share for 2010, that’s basically like a 12% bond. By comparison, 30-year Treasuries are going for less than 4%.

Of course, I don’t know how the market will react to earnings. It seems like the stock woke up all of a sudden about one month ago. Who knows why? As I said before, the story is still the same. Fundamentally, nothing has changed. My view is that NICK is a great buy under $12 per share.

Posted by on October 25th, 2010 at 4:27 pm


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