Sterne Agee Upgrades EZCORP, Shares Rally (EZPW)

Sterne Agee upgraded the pawnbroker, EZCORP Inc. (NASDAQ: EZPW) to “buy” from “neutral” on Wednesday.

Shares climbed 7.23% to close at $18.68 on Wednesday.

In its note to clients, Sterne Agee wrote, “We are not big fans of market-sentiment indicators, but when the news is bad and both the group and the individual stock in question move higher, we pay attention.”

Sterne Agee also added that the EZCORP could be forced to do shares buyback. The Investment bank believes that gold’s slump will have “limited” impact on its quarterly earnings.

The upgrade comes just 2 days after when EZCORP announced that it expects fiscal third quarter earnings to fall short of its previous guidance. The Company attributed sharp fall in gold prices for the downbeat outlook.

The Company said that it will shutter in excess of 100 legacy stores spread across the nation as a part of its aggressive strategy to counter the impact of gold prices sudden plunge.

In a statement to analysts and investors, company’s CEO, Paul Rothamel said, “While we are trimming back these locations, the overall company will continue to grow by adding 185 new stores within this fiscal year, broadening our online selling and lending channels, and adding numerous new products across our portfolio of companies to better serve our customers in the formats they desire with the products and services they want.”

The Company expects that current environment and subsequent drop in gross margins on gold scrapping will hurt its earnings by 35 cents a share, in the second half of the current year.

Earlier in April, EZCORP had provided earnings guidance of 47 cents to 52 cents a share and $2.55 to $2.80 a share for the full-year fiscal.

Analysts polled by Thomson Reuters’ most recent forecast was for earnings of 49 cents a share and $2.49 for the fiscal 2013.

Back in April, the Company had signaled that earnings both for the fiscal third quarter and fiscal 2013 could come at the lower end of the guidance due to sharp fall in gold prices. Since then gold prices have declined even more.