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Portfolio Recovery: A Strong Buy

Zacks Equity Research

On Sep 19, Zacks Investment Research upgraded Portfolio Recovery Associates Inc. (PRAA) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Portfolio Recovery has been experiencing rising earnings estimates on the back of improved second-quarter 2013 results. Moreover, steps taken to attain financial flexibility and improved performance from financial receivables have been impressive.

Additionally, this debt collector delivered positive earnings surprises in all the last 4 quarters, with an average beat of 7.45%. Portfolio Recovery also outperformed the year-to-date Nasdaq index, which posed a 28.0% increase against a robust return of 70.8% for the company.

On Jul 30, Portfolio Recovery reported second-quarter operating earnings per share of $2.56, which outpaced the Zacks Consensus Estimate by 32 cents or 14.3% and the year-ago quarter number by 36.9%.

Top-line growth of 24% primarily boosted results, with the company witnessing robust performance across operations. As a result, cash collections jumped 28% year over year, whereas call center and other collections posted a 23% increase. Growth was driven by legal collections and financial receivables as well. Consequently, operating margin increased to 40.4% from the year-ago quarter level of 36.9%.

Riding on a strong core fundamental growth trend, Portfolio Recovery’s well-diversified business model is resilient enough to cater to the dynamic market demands as well as expand into the European markets. Strong capitalization, fueled by the recent credit facility amendment and issuance of long-term notes, along with a healthy balance sheet and consistent record earnings growth score well in retaining investor confidence.

Based on Portfolio Recovery’s fundamental strength and capital management, the Zacks Consensus Estimate for 2013 grew 9.1% to $3.37 per share in the last 60 days. The same for 2014 rose 6.1% to $3.84 per share in the last 60 days. Meanwhile, no downward revision in estimates was witnessed for both the years.

Other Stocks to Consider

Apart from Portfolio Recovery, other outperformers in the financial services industry include FleetCor Tech Inc. (FLT), SVB Financial Group (SIVB) and Glacier Bancorp Inc. (GBCI). All the stocks carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on PRAARead the Full Research Report on FLTRead the Full Research Report on SIVBRead the Full Research Report on GBCIZacks Investment Research