PRA Group (PRAA) Up 13.2% in 6 Months: More Growth Ahead?
PRA Group, Inc.’s PRAA shares have jumped 13.2% in the past six months, outperforming the 2.4% growth of the industry. The company has not only managed to navigate through last year’s coronavirus-induced weakness in the market but also positioned itself for better returns in the future.
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Headquartered in Norfolk, VA, PRA Group is primarily involved in providing global financial and business services in the Americas, Australia, and Europe. Its primary business involves purchasing, collecting and managing portfolios of nonperforming loans. It currently has a market cap of $1.9 billion.
Can It Retain Momentum?
The answer is yes and before we get into the details, let us show you how its estimates for 2021 stand. The Zacks Consensus Estimate for 2021 earnings per share stands at $3.90, signaling an increase from last year’s figure of $3.26. The consensus estimate for 2021 revenues is pegged at $1.1 billion, indicating a rise of 2.3% from 2020.
The company beat earnings estimates thrice in the last four quarters and missed once, with an average surprise of 32.1%.
Now let’s delve into what’s driving the Zacks Rank #3 (Hold) stock.
Cash Collection Trend: PRA Group’s cash collection rose 7.4% and 13.3% year over year in 2018 and 2019, respectively. The trend continued in 2020. For the first nine months of 2021, the metric rose 4.2% year over year, thanks to Europe Core and Europe insolvency. The momentum is likely to continue on the back of the volume of purchases in the United States that will get a boost by 2021-end or at the beginning of the next year. Also, rapid economic recovery is expected to ensure strong U.S. digital collections. With modernizing collections, the cash efficiency ratio is likely to improve.
Receivable Income: PRA Group’s receivable income has increased since 2009, except for 2016. Total revenues increased 4.8% and 6% year over year during last year and the first nine months of 2021, respectively. A Strong capital position indicates the possibility of a rise in purchasing volumes for 2022. It has $1.4 billion available for further portfolio buyouts. Given solid fundamentals, this uptrend is expected to boost PRAA’s top line in the coming days.
Business Expansion: In a prudent move, PRA Group expanded its presence beyond the primary debt collection business, and stepped into government collections and audit services. The acquisition of eGov Systems in 2016 to consolidate the government business and alliances with the Internal Revenue Service, and Banco Bradesco S.A. are some of its notable expansionary moves. Furthermore, in 2019, it acquired the holding company of Resurgent Holdings' Canadian business. It created an advanced nonperforming loan business in Canada. These moves bode well for PRAA’s inorganic growth.
Risks
Despite the upside potential, there are a few factors that are impeding the stock’s growth lately. At third quarter-end, the company had only $56.5 million in cash and cash equivalents. Its borrowings were recorded at $2,520.9 million as of Sep 30, 2021. Total debt to total capital at quarter-end was 63.3%, reflecting a significant level of leverage. This can affect the company's financial flexibility. Also, rising expenses are preventing the bottom line to reach its true potential. Costs associated with increasing activities are likely to keep going up. Nevertheless, we believe that a systematic and strategic plan of action will drive long-term growth.
Stocks to Consider
Some better-ranked players in the Finance space include Alerus Financial Corporation ALRS, Blackstone Inc. BX and Houlihan Lokey, Inc. HLI, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Based in Grand Forks, ND, Alerus Financial provides numerous financial services to clients. Its financial strength is reflected by massive total assets of $3.2 billion at third quarter-end, which increased 5.4% for the first nine months of 2021. Rising investment securities will likely keep boosting ALRS’ asset position in the coming quarters.
Alerus Financial’s bottom line for 2021 is expected to jump 11.5% year over year to $2.81 per share. It has witnessed three upward estimate revisions in the past 30 days and no movement in the opposite direction. Alerus Financial beat earnings estimates thrice in the last four quarters and missed once, with an average surprise of 23.6%.
Headquartered in New York, Blackstone is well poised to benefit from its fund-raising ability, revenue mix and inorganic expansion strategies. The company’s fee-earning assets under management (AUM) and total AUM consistently demonstrate strong growth, aided by increasing net inflows. Over the last four years (2017-2020), fee-earning AUM has witnessed a CAGR of 11.9% and total AUM saw a CAGR of 12.5%.
Blackstone’s 2021 earnings are expected to rise 64.2% to $4.35 per share. It has witnessed five upward estimate revisions in the past 30 days compared with none in the opposite direction. BX beat earnings estimates in the last four quarters, with an average of 23.7%.
Houlihan Lokey — headquartered in Los Angeles, CA — provides multiple financial services to clients all over the world. Its growing footprint in Europe and Asia’s investment banking services field will help HLI boost strategic and shareholder value in the coming days. Rising average transaction fees will help HLI increase corporate finance revenues.
The full-year 2022 bottom line of Houlihan Lokey is expected to rise 36.8% year over year to $6.32 per share. In the past 30 days, it has witnessed four upward estimate revisions and no downward movement. HLI beat earnings estimates in all the last four quarters, with an average of 39.5%.
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