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Why Should You Hold PRA Group (PRAA) in Your Portfolio?

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PRA Group, Inc. PRAA has been gaining momentum on the back of its solid inorganic growth story and strong cash collections for a while now.
The company boasts an impressive surprise record, beating on earnings in all the trailing four quarters, the average being 50.13%.

Let’s analyze the factors that make this currently Zacks Rank #3 (Hold) stock a compelling choice for investors right now.

PRA Group has been actively working over the years on improving its cash efficiency ratio, backed by its operational efficiency. The company’s cash collection rose 8.9% and 12.4% year over year in 2020 and during the first quarter of 2021, respectively. This upside was mainly driven by Americas and Australia Core, largely owing to U.S. call center and other collections. We expect this trend to continue on the back of volume of purchases in the United States either in late 2021 or early 2022. PRA Group’s cash collection will likely rise on the back of increased digital payments and technological advancements.

One of its main revenue drivers, receivable income, has been rising since 2009, except in 2016. Its total revenues increased 4.8% and 15% year over year in 2020 and during the first quarter of 2021, respectively. Its strong capital position makes it optimistic about an expanded purchasing volume for next year.

The miscellaneous financial services provider took its presence beyond the primary debt collection business and stepped into government collections. PRA Group also acquired the holding company of Resurgent Holdings LLC's Canadian business in March 2019, which is expected to create an advanced nonperforming loan business in Canada. In 2020 and during the first quarter of 2021, the company spent $905.1 million and $647 million, respectively, on portfolio acquisitions. All these strategic moves bode well for the company’s inorganic growth.

Moreover, after bearing the brunt of high costs for many years, PRA Group took initiatives to curb the same. In 2020, the same decreased on ramped-down levels of activity, globally, followed by a 6.6% drop in the first quarter of 2021 owing to lower legal collection costs and fees. We expect the same to decline further, thereby aiding the company’s margins.

For 2021, the company's earnings are expected to inch up 3.4% year over year.

Shares of the company have gained 2.4% in a year’s time, underperforming its industry’s growth of 9.8%. However, its solid fundamentals are expected to help the stock bounce back going forward. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Zacks Investment Research

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Stocks to Consider

Some better-ranked companies in the same space are Virtu Financial, Inc. VIRT, XP Inc. XP and Moodys Corporation MCO, each currently holding a Zacks Rank #2 (Buy).

Virtu Financial, XP and Moodys managed to deliver a respective trailing four-quarter surprise of 30%, 30% and 22.3%, on average.

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