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Credit Acceptance (CACC) Down 13.6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Credit Acceptance (CACC). Shares have lost about 13.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Credit Acceptance due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Credit Acceptance Q4 Earnings & Revenues Lag, Costs Up

Credit Acceptance’s fourth-quarter 2019 earnings of $8.60 per share missed the Zacks Consensus Estimate of $8.96. However, the bottom line was up 10.4% year over year. Notably, the figure includes certain non-recurring items.

Results reflect solid revenue growth on the back of rise in loan balance. However, an increase in operating expenses and higher provision for credit losses were headwinds.

Excluding the non-recurring items, net income (non-GAAP basis) was $173.5 million or $9.22 per share, up from $153 million or $7.85 per share in the prior-year quarter.

In 2019, reported earnings per share of $34.57 lagged the consensus estimate of $35.02 but grew 17.6% year over year. Net income (non-GAAP basis) was $658.4 million or $34.70 per share, up from $554.5 million or $28.39 per share in 2018.

GAAP Revenues & Expenses Rise

Total revenues for the quarter were $385.9 million, up 12.6% year over year. This increase was largely driven by rise in finance charges. However, the reported figure lagged the Zacks Consensus Estimate of $388.6 million.

In 2019, total revenues grew 15.8% to $1.49 billion, which was in line with the consensus estimate.

Operating expenses of $170.7 million rose 20.4%. An increase in all cost components led to the rise.

Credit Quality Deteriorates

Provision for credit losses surged 53.7% from the year-ago quarter to $27.2 million. Moreover, allowance for credit losses at the end of the fourth quarter was $536 million, up 16%.

Strong Balance Sheet

As of Dec 31, 2019, net loans receivable amounted to $6.7 billion, increasing from $5.8 billion on Dec 31, 2018.

Total assets were $7.4 billion as of the same date, increasing from $6.2 billion on Dec 31, 2018. Also, total stockholders’ equity was $2.4 billion, up 18.3%.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

At this time, Credit Acceptance has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Credit Acceptance has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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