Portfolio Recovery Kept at Outperform - Analyst Blog

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We have retained our Outperform recommendation on Portfolio Recovery Associates Inc. ( PRAA ) 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. ( FLT ), Blackhawk Network Holdings, Inc. ( HAWK ) and Financial Engines, Inc. ( FNGN ). While FleetCor carries a Zacks Rank #1 (Strong Buy), Blackhawk and Financial Engines carry the same Zacks Rank as Portfolio Recovery.



FLEETCOR TECH (FLT): Free Stock Analysis Report

FINANCIAL ENGIN (FNGN): Free Stock Analysis Report

BLACKHAWK NETWK (HAWK): Free Stock Analysis Report

PORTFOLIO RCVRY (PRAA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: FLT , FNGN , HAWK , PRAA

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