Compelling Reasons to Hold on to PRA Group (PRAA) Stock
PRA Group, Inc. PRAA is well-poised to grow due to its improving cash collection efficiency in the U.S. market and better-than-expected portfolio purchases. The company's adeptness in managing diverse debt types positions it strategically for effective portfolio diversification.
PRA Group — with a market cap of $771.9 million — is a global financial and business services company in the Americas, Australia and Europe. The company specializes in the acquisition, collection and management of non-performing loans, constituting its core business activities. Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth holding on to at the moment.
Let’s delve deeper.
The Zacks Consensus Estimate for PRA Group’s 2023 bottom line has improved 4.3% over the past month. During this time, it has witnessed three upward estimate revisions and one movement in the opposite direction. The company beat earnings estimates in three of the last four quarters and missed once. This is depicted in the graph below.
PRA Group, Inc. Price and EPS Surprise
PRA Group, Inc. price-eps-surprise | PRA Group, Inc. Quote
The consensus estimate for 2023 revenues stands at $788.3 million. Its performance is expected to improve in 2024 as the company intends to make more profitable purchases, which will constitute a larger part of its portfolio.
PRA Group is expected to capitalize on improving portfolio supply and pricing in the United States amid ongoing credit normalization. This positive purchasing environment is a key factor contributing to the company's anticipated growth in the bottom line.
In the third quarter, PRA Group made notable strides in its non-performing loan portfolio acquisitions, totaling $311.2 million. This figure marked a substantial 69.9% surge compared to the previous year. With modernizing collections, the cash efficiency ratio is likely to grow. Its focus on investments in boosting digital capabilities and technologies can play a major role in future performance.
The cash efficiency ratio was 58.2% in the first nine months of 2023. The company expects the ratio to remain relatively stable in the fourth quarter. The metric is likely to touch the low 60s level in the near term, improving from the past few quarter levels due to several internal initiatives.
Key Concerns
There are a few factors that can hold the stock back. Its total debt to total capital of 71.1% is much higher than the industry’s figure of 52%. A rise in borrowing costs and increased leverage are leading to higher interest expenses.
Also, rising operating costs are a concern. Increasing legal collection costs and agency fees are denting margins. The metrics jumped 14.8% and 15% year over year, respectively, in the first nine months of 2023. However, we believe that a systematic and strategic plan of action will drive its long-term growth.
Key Picks
Investors interested in the broader Finance space can consider some better-ranked companies like Blue Owl Capital Corporation OBDC, StoneX Group Inc. SNEX and Globe Life Inc. GL. While Blue Owl Capital and StoneX currently sport a Zacks Rank #1 (Strong Buy) each, Globe Life carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus mark for Blue Owl Capital’s current year earnings is pegged at $1.91 per share, indicating 35.5% year-over-year growth. Furthermore, the consensus estimate for OBDC’s 2023 revenues suggests 30.4% year-over-year growth.
The Zacks Consensus Estimate for StoneX’s current year earnings has improved 1.4% over the past month. It beat earnings estimates thrice in the past four quarters and missed once, with an average surprise of 14.4%. Also, the consensus mark for SNEX’s revenues in the current year suggests 19% year-over-year growth.
The Zacks Consensus Estimate for Globe Life’s current year earnings is pegged at $10.60 per share, which indicates 30.1% year-over-year growth. It has witnessed one upward estimate revision against none in the opposite direction in the past 30 days. It beat earnings estimates in all the past four quarters, with an average surprise of 2.3%.
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PRA Group, Inc. (PRAA) : Free Stock Analysis Report
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