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Why Hold Strategy is Apt for PRA Group in Your Portfolio

Zacks

PRA Group, Inc. PRAA is well-poised for growth on the back of its strategic initiatives and a rising receivable income.

Estimates for the company have been revised upward over the past 30 days, reflecting analysts' optimism on the stock. The stock has seen the Zacks Consensus Estimate for 2020 earnings move 0.8% north.

The company boasts an attractive earnings surprise history, having outpaced the Zacks Consensus Estimate in three of the trailing four quarters, which reflects its operational excellence.

It has recently delivered fourth-quarter 2018 earnings per share of 33 cents, beating the Zacks Consensus Estimate by 22.2%, mainly attributable to revenue growth. The company’s total revenues were $236 million, up 12.3% from the year-ago quarter. The top line also surpassed the Zacks Consensus Estimate by 3.5% on the back of higher finance receivables.

The company has been witnessing a strong receivable income since 2009, which however, slipped in 2016. The metric again gained momentum over the last couple of years. This upside can be attributable to yield improvements on the back of certain pools in Europe Core and Americas Core. Given the strong fundamentals of the company and its constant initiatives to boost its receivable portfolio, the uptrend is likely to continue going forward.

PRA Group has taken its operations beyond primary debt collection business and stepped into government collections and audit services. Also, several strategic acquisitions and alliances positioned the company well for long-term growth. Its recent endeavors include partnering with Internal Revenue Service, forming alliance with Banco Bradesco S.A. and buying the holding company of Resurgent Holdings LLC's Canadian business. It is well-positioned in South America’s largest economy, collaborating with one of Brazil’s largest banks, RCB Investimentos. Thus, its ability to acquire and assimilate businesses in related fields is certainly a long-term positive as the traditional debt collection business matures and becomes more competitive.

The company’s cash collection rose in both 2017 and 2018, driven by the Americas Core and European Core. Last year, it amassed a total of $1.63 billion of cash around the globe. Management expects cash collection growth to accelerate over the course of the next couple of years based on the volume of purchases, growth in collector base and productivity, considering the relatively favorable macro environment for collections.

Moreover, the company’s stock is attractively valued at the moment. It is currently trading at a trailing twelve-month price-to-book ratio of 1.07, which is significantly lower than the industry’s ratio of 1.93.

The Zacks Consensus Estimate for current-year earnings per share is pegged at $1.84 on 7.4% higher revenues of $975.2 million.

For 2020, the Zacks Consensus Estimate for earnings stands at $2.45, up 33.3% year over year on $1.06 billion revenues, which is further boosted by a 8.3% rise.

Shares of this Zacks Rank #3 (Hold) company have lost 30.8% in a year’s time, wider than its industry’s decline of 12%.


Stocks to Consider

Investors interested in the finance sector can look into some better-ranked stocks like Virtu Financial, Inc. VIRT, Fidelity National Information Services, Inc. FIS and Euronet Worldwide, Inc. EEFT. You can see the complete list of today’s Zacks #1 Rank stocks here.

Virtu Financial provides market making and liquidity services to the financial markets around the globe. The company carries a Zacks Rank #2 (Buy) and came up with average trailing four-quarter positive surprise of 0.63%.

Fidelity National Information works as a financial services technology company worldwide. The company sports a Zacks Rank #1 (Strong Buy). It managed to deliver positive results in all the trailing four quarters, the average being 2.72%.

Euronet provides payment and transaction processing and distribution solutions worldwide. It has a Zacks Rank of 2. The company pulled off average four-quarter beat of 2.68%.

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