Why Is PRA Group (PRAA) Down 10.9% Since Last Earnings Report?
A month has gone by since the last earnings report for PRA Group (PRAA). Shares have lost about 10.9% 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 the most recent earnings report in order to get a better handle on the important catalysts.
PRA Group Q2 Loss Relieved by Lower Operating Costs
PRA Group incurred a second-quarter 2023 loss of 10 cents per share, narrower than the Zacks Consensus Estimate of 16 cents. Notably, earnings of 91 cents per share were reported in the prior-year quarter.
Total revenues dropped 19% year over year to $209.2 million. However, the top line beat the consensus mark by 2.46%.
The better-than-expected results were supported by lower operating expenses, strong portfolio acquisition volumes and improving European operations, partially offset by underperformance witnessed in the Americas and weaker portfolio income.
Quarterly Operational Update
PRA Group’s cash collection amounted to $419.3 million, which fell 5.6% year over year in the quarter under review. The metric suffered a blow due to a 23.9% year-over-year decline in U.S. call center and other collections, partially offset by a 58.6% jump in Other Americas and Australia Core cash collections. The reported figure beat the Zacks Consensus Estimate by 6.5% and our estimate of $372.1 million.
The portfolio income tumbled 5% year over year to $184.3 million, missing the Zacks Consensus Estimate by 0.9% but beating our model estimate of $169.7 million. Other revenues of $3.8 million declined 50.4% year over year in the second quarter and missed both the Zacks Consensus Estimate, as well as our model estimate.
Total operating expenses fell 6.2% year over year to $163.7 million in the second quarter due to lower compensation and employee services, and outside fees and services, partly offset by higher legal collection costs and agency fees. The figure was lower than our model estimate of $166.4 million.
PRA Group recorded a net income of $1.2 million, which comfortably beat our estimate but declined from the prior-year quarter’s net income of $39.1 million.
It purchased nonperforming loan portfolios of $327.8 million in the quarter under review, which surged 41.7% year over year. The cash efficiency ratio of 61.2% remained flat year over year due to a favorable cash collection seasonality, as well as lower collection costs in European countries.
The estimated remaining collections (“ERC”) of PRA Group totaled $5.9 billion at the second-quarter end.
Financial Update (as of Jun 30, 2023)
PRA Group exited the second quarter with cash and cash equivalents of $111.4 million, which surged from the 2022-end level of $83.4 million. It had $1.4 billion remaining under its credit facilities at the second-quarter end.
Total assets of $4,320.9 million increased from the figure of $4,175.7 million at 2022 end.
Borrowings totaled $2,739.7 million, up from the $2,494.9 million figure as of Dec 31, 2022.
Total equity of $1,239.7 million decreased from the 2022-end level of $1,286.8 million.
Business Outlook
PRAA expects compensation expenses to be in the mid-$70 million range in the third quarter.
Legal collection expenses for the third quarter are anticipated to stay in line with the second quarter. The same is likely to reach the mid-$20 million range by the fourth quarter.
Interest expenses are projected to be around $50 million in the third quarter of 2023. It expects the full-year effective tax rate to be in the mid-20% scale.
By the fourth quarter of 2023, the cash efficiency ratio is estimated to be 60% on a quarterly run rate basis. Management expects 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 review have trended downward during the past month.
The consensus estimate has shifted -394.74% due to these changes.
VGM Scores
Currently, PRA Group has a poor Growth Score of F, a grade with the same score on the momentum front. However, 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
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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, Moody's (MCO), has gained 0.1% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
Moody's reported revenues of $1.49 billion in the last reported quarter, representing a year-over-year change of +8.2%. EPS of $2.30 for the same period compares with $2.22 a year ago.
Moody's is expected to post earnings of $2.42 per share for the current quarter, representing a year-over-year change of +30.8%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Moody's. Also, the stock has a VGM Score of F.
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