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PRA Group, Inc. PRAA has been suffering escalating expenses and poor solvency level for a while now.
Over the past 60 days, the company has witnessed its 2021 earnings estimate move 4.8% south.
Its return on equity (ROE) undermines its growth potential. The company’s trailing 12-month ROE of 12.2% not only deteriorated over the years but also compares unfavorably with the industry average of 18.5%, indicating that it is less efficient in utilizing its shareholders’ funds.
What’s Bothering the Stock?
The company has been witnessing a steep expense level over the past few years. Discover Financial witnessed its 2018 and 2019 expense level rise 14.4% and 8.1%, respectively. Although in the first nine months of 2020, the same decreased 5% from the prior-year comparable period amid reduced levels of activity globally, the company is likely to witness increasing costs going forward on account of its investments, which in turn, might put pressure on its margins.
Another reason behind the air of pessimism surrounding the stock is higher leverage, which shot up interest expenses and also induced a weak solvency level. In the first nine months of 2020, interest expenses inched up 0.4% from the prior-year comparable period. Consequently, the company’s total debt to total capital of 67.5% is higher than the industry’s average of 58.7%. Further, its times interest earned stands at 2.3X, lower than the industry's average of 4.9X. Its lack of financial flexibility thus remains a concern.
The company also incurred COVID-led business loss. In third-quarter 2020, there was a significant decrease in U.S. legal cash collections and Americas’ insolvency collections.
The Zacks Consensus Estimate for 2021 earnings is pegged at $3.15 per share, indicating a downside of 4.3% from the year-ago reported figure.
Zacks Rank and Price Performance
Shares of this currently Zacks Rank #4 (Sell) company have gained 6.6% in a year’s time against its industry’s decline of 21.6%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other comapnies in the same space, such as Euronet Worldwide, Inc. EEFT, TCG BDC Inc. CGBD and Credit Acceptance Corporation CACC have lost 10.6%, 19.2% and 24%, respectively, in the same time frame.
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