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Stock Market Wrap-Up: Friday's Big Stock Winner Looks Like a No-Brainer Right Now

By Dan Caplinger - Updated May 8, 2020 at 4:50PM

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Stocks ended the week on a positive note.

The stock market has been extremely optimistic lately, even in the face of heightened uncertainty related to the global COVID-19 outbreak. Despite fears of potential resurgences of coronavirus case counts, governments in many states are starting to allow business activity to return gradually toward more normal levels, and investors hope that the resulting restarting of the economy will mark a bottom for disturbing trends like employment. The Dow Jones Industrial Average (^DJI 1.27%), S&P 500 (^GSPC 1.73%), and Nasdaq Composite (^IXIC 2.09%) were all higher by about 1% to 2% on Friday.

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Yet there's one business that stands to fare well even if the coronavirus pandemic leads to a dramatic downturn in the global economy. PRA Group (PRAA 1.65%) specializes in debt collection, and it stands to see rising demand as business clients struggle to get the customers who owe them money to pay them back. Today, PRA Group reported its first-quarter financial results, and investors generally liked what they saw from the debt collector.

Spread-out utility bills next to a calculator.

Image source: Getty Images.

How PRA Group fared

PRA Group's stock soared 32% on Friday in response to its financial report. At first glance, some of the numbers might have looked lackluster, but in the context of the coronavirus crisis, PRA Group has held up quite well.

PRA Group's revenue rose 5% from year-ago levels, with flat operating expenses helping to boost the company's net income by 26% year over year. The resulting earnings of $0.42 per share were better than most had expected and up 24% from where they were 12 months ago.

From an activity standpoint, PRA Group had record results. Global cash collections totaled $495 million during the period, including $349 million in the company's Americas segment and $146 million in Europe.

What's especially encouraging about those results is that they came despite unprecedented business challenges for the company. PRA Group's U.S. staffing levels were cut to about 60% to 70% in its call centers, as the debt collector did what it took to keep its employees safe. Many employees in Canada and South America worked from home. The same was true in Europe, and although operating requirements and restrictions differ in the roughly dozen countries in which PRA Group works, the company was able to keep some employees working from home while others were actually able to come into call centers and offices.

What's ahead for PRA Group?

PRA Group doesn't see the current opportunity ending soon. The company invested another $193 million toward buying collection assets in the Americas, along with $80 million in investments in the European debt collection market. PRA estimates that it has almost $850 million in capital available to make future portfolio acquisitions.

There are plenty of collections that PRA Group has yet to make. The company estimates it can collect as much as $6.5 billion worldwide with its current set of collection assets, with the biggest opportunities in the U.S. and U.K. markets. Central Europe is also an area of high potential for the debt collector.

With promising results in April and signs that it will be able to acquire attractive collection assets going forward, PRA Group looks like it's in a great position to deal with whatever comes out of the coronavirus crisis. Even if economic conditions weaken for a while, this would help PRA Group pick up new collections more inexpensively and potentially boost the financial stock's  future profit potential.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of PRA Group. The Motley Fool has a disclosure policy.

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Stocks Mentioned

PRA Group, Inc. Stock Quote
PRA Group, Inc.
$38.69 (1.65%) $0.63
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Dow Jones Industrial Average (Price Return)
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S&P 500 Index - Price Return (USD)
$4,280.15 (1.73%) $72.88
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NASDAQ Composite Index (Price Return)
$13,047.19 (2.09%) $267.27

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