Jefferies Downgrades Ezcorp Following Recent Board Changes

Despite a compelling valuation, it is difficult to assign Ezcorp Inc EZPW a Buy rating following the recent corporate governance actions which represents a misalignment with non-voting shareholders, according to Jefferies.

The Analyst

Jefferies’ John Hecht downgraded Ezcorp from Buy to Hold while reducing the price target from $13.50 to $6.50.

The Thesis

Ezcorp has appointed Phil Cohen, the sole owner of the voting shares, as Executive Chairman of the Board. Although Mr. Cohen has vast experience, his history with the company reflects actions that are “not in the best interest of non-voting shareholders,” Hecht said in the note.

“Such actions include outside consulting relationships with very high levels of pay to Mr. Cohen with little justification or accountability and influence on a series of acquisitions which have a poor record of success,” the analyst wrote.

He added that Mr. Cohen has been involved with Ezcorp, but had become more hands off, thereby reducing his influence. The latest development means that his involvement will now become more direct.

These developments limit Ezcorp’s ability to access more efficient sources of capital, which have recently hampered the company's growth. With this, Ezcorp will be constrained from any acquisition activity, which has benefited its peers, Hecht mentioned.

Share Price

Shares of Ezcorp had dropped 13.51% to $5.36 at the time of publishing on Tuesday.