Specialty finance company CompuCredit (NASDAQ:CCRT) will report first-quarter 2007 financial results tomorrow, May 8.
What analysts say:
- Buy, sell, or waffle? It's bully for CompuCredit as eight of the nine analysts covering the Motley Fool Stock Advisor recommendation rate it a buy and the lone holdout says, um, hold.
- Revenues. Despite the bullish sentiment, revenues are expected to fall 21% to $180.5 million.
- Earnings. Profits are also expected to be slashed by 80% to $0.21 per share, well off the $1.09 the company recorded a year ago.
What management says
With the subprime lending sector taking it on the chin these days, it shouldn't have surprised many that CompuCredit -- which primarily mines the lower end of the FICO credit scale looking for gold -- should have been walloped alongside others in the industry. That CompuCredit has rebounded, though, underscores the market's realization that not all businesses catering to the unbanked and underbanked are alike and the woes of the subprime mortgage industry are essentially remaining confined therein.
Yet management is not blind to the risks of the industry, and as it has increased the consumers offered its credit services it has increased its allowance for loan losses commensurately so that it now stands at almost 23% of loans and fees receivable, up from 19% a year ago.
What management does:
CompuCredit buys and sells the receivables of other companies, as well as its own debt. Yet where it makes most of its money -- almost half of its revenues derive from it -- is in offering credit cards to individuals typically unable to obtain credit, those with no or low FICO scores. You're probably the family with the three-digit number developed by Fair Isaac (NYSE:FIC) whenever you've applied for a loan yourself. CompuCredit also helps those who've lost their credit rating to re-establish it, though sometimes the tactics used have drawn the ire of customers and consumer advocates. CompuCredit has indeed been aggressive at times, and with the changes in the bankruptcy laws, may become more so in the future.
|
06/05 |
09/05 |
12/05 |
03/06 |
06/06 | |
|---|---|---|---|---|---|
|
Net |
22.1% |
19.6% |
15.6% |
13.7% |
13.9% |
One Fool says:
There's a real need for the services CompuCredit provides, particularly for those who seek to re-establish good credit. While it seems that consumer do-gooders look askance at any company catering to the subprime industry -- payday lenders are one example -- their services are very much in demand.
In addition to its credit card services and bundling and selling receivables, CompuCredit actually does offer payday loans, what it calls retail micro loans, though it accounts for only $104 million of the $1.3 billion total revenues. It also securitizes the receivables of a series of buy here/pay here auto dealerships.
While CompuCredit may very well see lower revenues and profits this quarter as a result of customers paying off loans in higher rates due to it being income tax refund season, that sets the stage for a more profitable future as it also serves to reduce the number of delinquencies experienced.
Related Foolishness:
• Subprime Subpar for CompuCredit?
• Post of the Day: CompuCredit
• Foolish Fundamentals: Margins
CompuCredit has earned a five-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock-rating service by joining today. It's free!
Fool contributor Rich Duprey owns shares of CompuCredit. The Fool has a disclosure policy.
