We are upgrading our recommendation on
Portfolio Recovery, Inc.
) to Outperform from Neutral based on its strong cash collections
and strategic acquisitions. The company's second quarter earnings
surpassed the Zacks Consensus Estimate and the year-ago earnings on
account of strong top-line growth attributable to continuous
improvement in cash collections.
Call center, legal and purchased bankruptcy collections drove the
topline growth. Even the performance of the fee-for-service
business showed improvement after posting weak results in the past
few quarters. The balance sheet also strengthened with higher cash
and shareholder equity.
Long-term investments are benefiting the core portfolio, while
strategic acquisitions are accelerating earnings growth. The credit
facility will further enhance the company's liquidity, auguring
well for Portfolio Recovery's long-term expansion plans. Our
six-month target price of $120.00 per share equates to about 16.8x
our earnings estimate for 2012. This target price implies an
expected total return of 20% over that period.
PORTFOLIO RCVRY (PRAA): Free Stock Analysis
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