Why Is PRA Group (PRAA) Down 10.4% Since Last Earnings Report?
It has been about a month since the last earnings report for PRA Group (PRAA). Shares have lost about 10.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is PRA Group 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 catalysts.
PRA Group Q4 Earnings Beat on a Declining Expense Base
PRA Group, Inc. reported fourth-quarter 2022 earnings per share (EPS) of 41 cents, which beat the Zacks Consensus Estimate by a whopping 51.9% and our estimate of 22 cents. However, the bottom line plunged 48.1% year over year.
Total revenues of $222.9 million dropped 13.3% year over year. Yet, the top line beat our estimate of $210.2 million.
The quarterly results benefited from a declining expense level. However, the upside was partly offset by reduced portfolio income and softer cash collections.
Quarterly Operational Update
Cash collection of PRA Group decreased 17.3% year over year to $391.7 million in the quarter under review due to a 34.1% year-over-year decrease in U.S. call center and other cash collections as well as an 11.8% decline in Europe cash collections. Moreover, the figure lagged the Zacks Consensus Estimate of $402 million and our estimate of $420.5 million.
The portfolio income of $184.9 million fell 12.6% year over year but surpassed the consensus mark of $172 million and our estimate of $167.2 million. Other revenues tumbled 21.9% year over year to $3.8 million, higher than the Zacks Consensus Estimate of $1.5 million and our estimate of $1.8 million.
Total operating expenses slipped 6.3% year over year to $163.5 million in the fourth quarter but remained higher than our estimate of $159.7 million. The decline in the metric came on the back of a 24.3% decline in other operating expenses and a 5.2% decrease in compensation and employee services.
PRA Group purchased nonperforming loan portfolios of $288.1 million in the quarter under review. The cash efficiency ratio decreased 490 basis points year over year to 58.6%. The estimated remaining collections totaled $5,699.7 million at the fourth-quarter end.
Financial Update (as of Dec 31, 2022)
PRA Group exited the fourth quarter with cash and cash equivalents of $83.4 million, which fell 4.8% from the figure in 2021 end. PRA Group had $1.6 billion remaining under its credit facilities at the fourth-quarter end.
Total assets of $4,175.7 million slid 4.4% from the 2021-end level.
Borrowings declined 4.4% from the figure as of Dec 31, 2021 to $2,494.9 million. Total equity of $1,286.8 million decreased 2.9% from the 2021-end level.
Full-Year Update
PRA Group’s EPS of $2.94 dropped 27.2% year over year in 2022. Total revenues fell 11.8% year over year to $966.5 million.
Cash collection amounted to $1,729.1 million tumbling 16.1% year over year. Portfolio income of $772.3 million declined 11.8% year over year in 2022.
PRA Group bought back shares worth $99.4 million in 2022.
Outlook
Management expects an increase in U.S. card balances, delinquency rates, charge-off rates and bank loan loss reserves that will result in an increased portfolio supply in the days ahead. It also remains optimistic about its healthy purchase levels in Europe.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 8.13% due to these changes.
VGM Scores
At this time, PRA Group has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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, Royalty Pharma (RPRX), has gained 3.4% over the past month. More than a month has passed since the company reported results for the quarter ended December 2022.
Royalty Pharma reported revenues of $1.06 billion in the last reported quarter, representing a year-over-year change of +96%. EPS of $1.56 for the same period compares with $0.80 a year ago.
For the current quarter, Royalty Pharma is expected to post earnings of $0.97 per share, indicating a change of +59% from the year-ago quarter. The Zacks Consensus Estimate has changed -7.2% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Royalty Pharma. Also, the stock has a VGM Score of B.
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