Portfolio Recovery Associates Inc.
) hit its 52-week high on August 3, 2012 after reporting strong
second quarter results, which included a 14.0% positive earnings
surprise. This marks the eleventh straight earnings beat for this
financial and business service company. With strong estimate
revisions, this Zacks #1 Rank (Strong Buy) stock has now reached
the momentum radar.
Sturdy Second Quarter
On August 1, Portfolio Recovery Associates reported second-quarter
operating earnings of $1.87 per share, surpassing the Zacks
Consensus Estimate by 14.0% and the year ago earnings by 26.4%. The
outperformance was fuelled by strong top-line growth due to
continuous improvement in cash collections.
Portfolio Recovery's total revenue escalated 29% year over year to
$147.9 million, exceeding the Zacks Consensus Estimate by 4.9%. The
boost in revenue was mainly driven by cash receipts that grew 30%
year over year and cash collections that jumped 32%.
Operating income surged 20% year over year to $54.6 million,
despite a 32% growth in operating expenses. Nevertheless, the
company netted an annualized return on equity (ROE) of 20.3%,
surpassing its long-term target of 20.0%.
For the first time since its inception, the company successfully
negotiated more than 2.0 million U.S. customer payments in a single
quarter to pay down their debt. Portfolio Recovery also has about
$77 million worth of stock available for repurchases under the
ongoing $100 million share buyback program. All these factors
inject revitalized confidence in the future operating performance
of the stock.
Earnings Estimate Revisions Raise Optimism
Following a strong second quarter, the Zacks Consensus Estimate for
2012 increased 7.2% to $7.14 as all five estimates were revised
upward over the last 30 days. This represents a year over year
increase of 22.8%.
For 2013, the Zacks Consensus Estimate increased 4.4% to $8.76 over
the last 30 days, supported by upward revisions from all five
estimates again. This implies a 22.7% growth over 2012. The strong
double-digit growth projection further validates the market's
belief in Portfolio Recovery's fundamental strength.
Valuation Appears Secure
Portfolio Recovery currently trades at a forward P/E of 14.0x, a
10% discount to the peer group average of 15.6x. However, on a
price-to-book basis, shares currently trade at 2.7x, a 13% premium
to the peer group average of 2.4x. Based on the company's strong
growth prospective, the premium looks reasonable and well supported
by its long-term estimated EPS growth rate of 15.0%.
The stock also looks attractive with regard to its trailing
12-month ROE of 18.1%, which is above the peer group average of
Charts Echo an Upward Trend
Portfolio Recovery hit a 52-week high of $101.64 on August 3,
rising about 40% and reflecting the increased growth momentum for
the rest of 2012.
Shares have been consistently trading far above its 200-day moving
average since mid-June 2012, while it has fared well with respect
to the 50-day moving average since the end of June 2012.
The stock has also outperformed the year-to-date NASDAQ index, with
an astounding year-to-date return of 48.4% compared to an NASDAQ
tally of 18.07%. Volume is fairly strong, averaging 129.6K daily.
Headquartered in Norfolk, Virginia and incorporated in 1996,
Portfolio Recovery purchases, manages and collects defaulted
consumer receivables from credit originators such as banks, credit
unions, auto finance companies, retail merchants and other service
providers. The company employs more than 3,000 professionals to
serve customers in the U.S. and the U.K. With a market
capitalization of about $1.69 billion, it competes with American
Reprographics Co. (
) and Hudson Global Inc. (
) among others.
PORTFOLIO RCVRY (PRAA): Free Stock Analysis
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