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It has been about a month since the last earnings report for Credit Acceptance (CACC). Shares have lost about 5.1% 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 its most recent earnings report in order to get a better handle on the important drivers.
Credit Acceptance Q2 Earnings Beat, Provisions Rise
Credit Acceptance reported second-quarter 2020 earnings of $5.40 per share, beating the Zacks Consensus Estimate of $4.65. The company recorded earnings of $8.68 per share in the prior-year quarter. Notably, the figure includes certain non-recurring items.
Increase in revenues and lower operating expenses supported results. Moreover, the balance sheet remained strong during the second quarter. However, a significant increase in provisions remained a major headwind.
Excluding non-recurring items, net income (non-GAAP basis) was $154.1 million or $8.63 per share, down from $162.9 million or $8.60 per share in the prior-year quarter.
GAAP Revenues Increase, Expenses Fall
Total revenues were $406.3 million, up 9.6% year over year. The increase was largely driven by a rise in finance charges. Also, the figure beat the Zacks Consensus Estimate of $372.7 million.
Operating expenses of $81.6 million declined slightly from the prior-year quarter. Lower general and administrative attributed to the fall.
As of Jun 30, 2020, net loans receivable amounted to $6.7 billion, up 2% from the prior quarter. Total assets were $7.3 billion as of the same date, which increased 1.1% sequentially. Also, total stockholders’ equity was $2 billion, up 5% from the prior quarter.
Credit Quality Deteriorates
Provision for credit losses surged substantially from the year-ago quarter to $139.4 million. The rise was mainly due to the adoption of CECL on Jan 1, 2020, and the impact of a reduction in expected future cash flows from its loan portfolio.
Allowance for credit losses at the second-quarter end was $3.4 billion, up significantly year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
At this time, Credit Acceptance has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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