Both EZCorp and Cash America were active in the M&A space last year, with the former acquiring Crediamigo in Mexico, while Cash America bought 34 smaller pawn shops via two acquisitions in the U.S. Some analysts (see the full story here) are also concerned about EZ Corp’s dependence on inorganic growth, and the company has missed earnings in three of the past five quarters. Cash America, meanwhile, has only missed consensus once over this period, and is up more (9.9%) than EZCorp (-14.4%) over the past year.
It’s understandable that Kristynik has chosen Cash America over EZCorp—we’d rather have steady, consistent growth as well, and the company also pays a dividend (0.3% yield), while EZCorp does not.
Electronic Arts Inc. (NASDAQ:EA) is Kris Kristynik’s other small-cap holding, and is the smallest position in his 13F portfolio. Shares of the videogame developer have been in free-fall over the past 12 months, losing over 18% in the face of a few industry-specific headwinds. We’ve covered these issues before, but they boil down to: (1) a lack of next generation console hardware and (2) increased competition from mobile gaming. The latter issue is more secular in nature, and has negatively affected competitors Activision Blizzard, Inc. (NASDAQ:ATVI) and Take-Two Interactive Software, Inc. (NASDAQ:TTWO) as well.
Looking ahead, the sell-side expects EA to generate the best EPS growth of this trio, with early estimates predicting 13.8% annual expansion over the next half-decade. Analysts predict Activision and Take-Two to generate EPS growth of 9.3% and 13.2% over this time, and investors are rightfully valuing EA for this advantage. The stock trades at a little over 12 times forward earnings, above both Activision (11.6x) and Take-Two (5.6x), but it’s worth noting that EA is still at a 34% discount to the electronic gaming and multimedia industry’s average.
In terms of content, each game maker has its own franchises to ride, so to speak, over the next couple of years. Activision Blizzard launched the latest iteration of its World of Warcraft series last fall titled Mists of Pandaria, and like clockwork, we can expect that a new Call of Duty will be released this November. The company is also expected to publish a Halo-successor with an MMO slant codenamed Destiny at the end of this year, and WoW-successor Titan is expected in 2014.
Take-Two subsidiary 2K Games will release the much-anticipated BioShock Infinite this March, and it is set to release the Rockstar Games-developed Grand Theft Auto V sometime in the second quarter.
EA, meanwhile, offers investors a bit more stability with its pipeline, and is set to release popular shooters Crysis 3 and Dead Space 3 next month. More importantly, EA Sports gives the company an established collection of proven franchises updated yearly, including Tiger Woods PGA Tour, NCAA Football, Madden, FIFA and NHL. Almost all of EA’s sports-related franchises hold dominant positions in their respective genres, and should continue to do so with the introduction of next-gen consoles in the future.
In addition to the company’s growth-related advantage, another, more exciting prospect is EA’s potential in the digital content delivery realm. A key executive has already admitted that he sees EA becoming a “100% digital company,” which is a decidedly different opinion than Take-Two has articulated. Activision Blizzard is positioning itself more closely in EA’s corner, but when push comes to shove, it’s hard for investors to argue with Kristynik’s choice out of these three companies.
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Disclosure: I have no positions in any of the stocks mentioned above
