Why Is PRA Group (PRAA) Up 21.6% Since Last Earnings Report?
A month has gone by since the last earnings report for PRA Group (PRAA). Shares have added about 21.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is PRA Group due for a pullback? 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 catalysts.
PRA Group Q3 Loss Narrows on Growing Portfolio Income
PRA Group incurred a third-quarter 2023 loss of 31 cents per share, narrower than the Zacks Consensus Estimate of a loss of 39 cents per share. Notably, the company reported earnings of 63 cents per share in the prior-year quarter.
Total revenues of $216.4 million fell 11.6% year over year in the quarter under review. However, the top line outpaced the consensus mark by 5.9%.
The quarterly results gained from robust portfolio purchases, favorable pricing and improved operational results in Brazil and Europe. However, the upside was partially offset by increased expenses related to legal collection fees and agency fees.
Quarterly Operational Update
Total cash collections of PRA Group grew 1.8% year over year to $419.6 million, which beat the Zacks Consensus Estimate of $412 million and our estimate of $394.1 million. The metric benefited on the back of higher collections from Brazil and Europe.
The portfolio income of $190 million advanced 2.2% year over year in the third quarter and surpassed the consensus mark of $186 million as well as our estimate of $174.9 million. Other revenues plunged 59.4% year over year to $4.3 million, lower than the consensus mark of $5.6 million.
Total operating expenses of $173.4 million dipped 0.4% year over year but came higher than our estimate of $170 million. The metric witnessed a year-over-year decline, attributable to lower compensation and employee services, legal collection costs, and outside fees and services. However, legal collection fees and agency fees escalated 9.8% and 28.2%, respectively, on a year-over-year basis.
PRA Group incurred a net loss of $8.2 million in the quarter under review against the prior-year quarter’s net income of $27.2 million. The figure also came narrower than our estimate of a loss of $13.3 million.
It purchased nonperforming loan portfolios of $311.2 million in the third quarter, which soared 69.9% year over year. The cash efficiency ratio improved 50 basis points (bps) year over year to 58.9%.
The estimated remaining collections (“ERC”) of PRA Group amounted to $6 billion at the third-quarter end.
Financial Update (As of Sep 30, 2023)
PRA Group exited the third quarter with cash and cash equivalents of $105.2 million, which climbed 26.1% from the level at 2022 end. It had $1.3 billion remaining under its credit facilities at the third-quarter end.
Total assets of $4.3 billion increased 3.7% from the 2022-end figure.
Borrowings were $2.8 billion, up 13.5% from the figure as of Dec 31, 2022. Total equity of $1.2 billion slipped 7.5% from the 2022-end level.
Forward View
Legal collection expenses continue to be forecasted in the low to mid-$20 million range in the fourth quarter of 2023. Net interest expenses are currently projected to be in the low $50 million range in the fourth quarter.
The effective tax rate is expected in the low 20% range this year.
The cash efficiency ratio is projected to remain relatively stable in the fourth quarter. The metric is likely to touch the low 60s level in the near term. PRA Group is likely to collect an ERC balance of $1.5 billion within the next 12 months.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
The consensus estimate has shifted 6.94% due to these changes.
VGM Scores
Currently, PRA Group has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
PRA Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
PRA Group belongs to the Zacks Financial - Miscellaneous Services industry. Another stock from the same industry, Synchrony (SYF), has gained 15.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.
Synchrony reported revenues of $4.36 billion in the last reported quarter, representing a year-over-year change of +11.1%. EPS of $1.48 for the same period compares with $1.47 a year ago.
For the current quarter, Synchrony is expected to post earnings of $1.01 per share, indicating a change of -19.8% from the year-ago quarter. The Zacks Consensus Estimate has changed +1.3% over the last 30 days.
Synchrony has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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