We issued an updated research report on PRA Group Inc. PRAA on Dec 11, 2015.
PRA Group has experienced negative operating leverage in the last few years due to the effects of global economic crisis. Moreover, operating expenses increased, thereby weighing on margins. Additionally, the unfavorable jury verdict received on May 11, 2015 on a matter pending in Missouri, might increase expenses and dampen operating margins going ahead.
In several of the past quarters, rise in borrowing costs and increase in leverage have resulted in higher interest expenses. The first nine months of 2015 were also no exception. Moreover, increased borrowings have led to deterioration in financial leverage, which might make the company more vulnerable to adverse economic conditions or industry hazards. Such increased debt levels may also necessitate the use of a significant portion of the operating cash flow to service debt payments, thereby limiting the company’s financial flexibility.
Nevertheless, the company’s inorganic growth story remains compelling. The company’s inorganic growth initiatives have helped it to expand beyond its primary debt collection business into government collections, audit services and claims settlement. Moreover, both cash collections and collector productivity (cash collections per hour paid) continue to be at record highs as efficiency improves at PRA Group’s operating call centers and the company continues to hire new collectors.
The company’s bottom line has also shown some improvement over the past few years. The company has even made significant investments in new portfolios of debt in the U.S. and the U.K. A strong balance sheet further enables the company to invest in an improving portfolio of acquired accounts in North America and Europe. This streak of deal wins and portfolio acquisitions will stimulate future collection activity, thereby strengthening the supply and pricing chain as well as the fee income businesses.
PRA Group currently carries a Zacks Rank #5 (Strong Buy). Some better-ranked stocks from the financial services space are Euronet Worldwide, Inc. EEFT, Blackhawk Network Holdings, Inc. HAWK and Consumer Portfolio Services, Inc. CPSS. While Euronet sports a Zacks Rank #1 (Strong Buy), both Blackhawk and Consumer Portfolio Services hold a Zacks Rank #2 (Buy).
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