PRA Group now has global scope. Source: PRA Group.
On the popularity scale, debt collection agencies are among the most-hated companies in the world, with many having reputations for brazen tactics designed to intimidate and cajole people who owe money into paying up. For PRA Group (PRAA 2.10%), which until last October was known as Portfolio Recovery Associates, debt collection is an incredibly lucrative business, and shareholders have enjoyed solid long-term gains from the company's past performance. Yet lately, PRA Group has run into some setbacks in its share price, and with the company slated to file its fourth-quarter financial report with the SEC in the near future, some investors want to know whether PRA Group stock will bounce back. Let's take an early look at what's been happening with PRA Group over the past quarter and what it's likely to tell investors in its coming financial report.
Stats on PRA Group
|
Analyst EPS Estimate |
$1.11 |
|
Change From Year-Ago EPS |
22% |
|
Revenue Estimate |
$247.07 million |
|
Change From Year-Ago Revenue |
34% |
|
Earnings Beats in Past Four Quarters |
2 |
Source: Yahoo! Finance.
Can PRA Group earnings keep growing faster?
In recent months, investors have curbed their enthusiasm somewhat about PRA Group earnings, cutting a penny per share from their fourth-quarter expectations and reducing their full-year 2015 projections by nearly 2%. The stock has performed much worse, though, falling 17% since early November.
Most of PRA Group's losses came after the company reported its third-quarter results more than three months ago. After adjusting for acquisition costs related to its recent buyout of Aktiv Kapital, PRA Group's earnings came in just above what most investors expected to see. Yet some investors worried about increasing expenses from PRA Group's legal costs of collecting debt, despite the fact that the collection specialist has a strong track record of delivering huge returns on their targeted legal activities by focusing only on debtors who are most capable of actually paying after a court issues a legal judgment against them.
PRA Group aims to help borrowers manage debt while getting its collection assets repaid. Source: PRA Group.
Yet PRA Group has more potential than ever after the Aktiv acquisition. By dramatically expanding its reach into Europe, PRA Group has an opportunity to become the world's only truly global debt collection company. Moreover, with the U.S. and European economies having diverged extensively over the past year or two, PRA Group will benefit from the diversification of having key markets in different phases of their respective business cycles. The fourth-quarter report will be the first in which Aktiv Kapital contributes a full quarter's worth of performance to PRA Group's overall results, and so those who may have found Aktiv's contribution last quarter to be lacking could well get what they want in this quarter's release.
Source: PRA Group.
What's good for PRA Group in the long run, though, will likely hurt its results in the immediate future. Because the value of the euro has plunged against the U.S. dollar over the past year, companies that have European assets have seen their values drop in U.S. dollar terms, creating a downdraft for revenue and earnings of U.S.-based companies. In particular, now that Aktiv will play such a vital role to PRA Group's overall results, the potential for a downward change in the valuation of Aktiv's euro-denominated and other European currency-exposed debt is at least partially responsible for concerns about the stock price. Still, for long-term investors, further share-price weakness could well be a perfect chance to add to positions if you believe that the euro's decline is simply part of a cyclical move that will reverse itself eventually.
In the PRA Group earnings report, it'll be important to focus not only on Aktiv's portion of the company's overall business but also on the overall macroeconomic environment in the debt-collection industry. As income-investing opportunities become more expensive, ventures like debt collection will start to look more attractive, and that could make it more expensive for PRA Group to acquire new portfolios of debts to collect. Nevertheless, with its strong reputation in the industry, PRA Group has the inside track to whatever assets are available to help its business grow in the long run.
