We have retained our Outperform recommendation on
Portfolio Recovery Associates Inc.
) following better-than-expected third-quarter results.
Why the Reiteration?
Portfolio Recovery delivered a positive earnings surprise in the
last four quarters, with an average beat of 11.4%. In the last
reported quarter, earnings per share came in at $1.02, beating
the Zacks Consensus Estimate of 88 cents. Earnings also increased
56.9% year over year. Earnings were primarily driven by a surge
in revenues, which was attributable to the continuous improvement
in income from finance receivables. Renewed emphasis on the
fee-for-service businesses also aided the third-quarter upside.
This stock with a Zacks Rank #2 (Buy) remains a strong player in
the market, with a focus on quality and profitability rather than
pure volume growth. The fee-for-service business has also
improved since the acquisition of Mackenzie Hall Holdings Ltd. in
Jan 2012. Portfolio Recovery also exceeded its return on equity
(ROE) target of 20% by generating an average of 22.4% for the
first nine months of 2013 against 19.2% in the year-ago period.
Moreover, both cash collections and collector productivity (cash
collections per hour paid) continue to be at record highs as
efficiency improves at the Portfolio Recovery's operating call
centers and the company continues to hire new collectors. The
surge in cash collections is expected to continue to drive
revenues impacting margin expansion favorably.
Over the last 60 days, most of the estimates moved north, pulling
up the Zacks Consensus Estimate for 2013 by 2.4% to $3.45 per
share. This also represents a year-over-year improvement of
40.1%. Over the same period, the Zacks Consensus Estimate for
2014 increased 1% to $3.89 per share, reflecting a year-over-year
improvement of 12.87%.
However, intense competition, escalating operating expenses and
interest expense might weigh on the positives of Portfolio
Recovery to some extent.
Other Stocks to Consider
Other players in the financial services industry which look
attractive at current levels, include
FleetCor Technologies, Inc.
Blackhawk Network Holdings, Inc.
Financial Engines, Inc.
). While FleetCor carries a Zacks Rank #1 (Strong Buy), Blackhawk
and Financial Engines carry the same Zacks Rank as Portfolio
FLEETCOR TECH (FLT): Free Stock Analysis
FINANCIAL ENGIN (FNGN): Free Stock Analysis
BLACKHAWK NETWK (HAWK): Free Stock Analysis
PORTFOLIO RCVRY (PRAA): Free Stock Analysis
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