Credit Acceptance Gains on Consumer Loans and Active Dealers


Supported by a decent increase in consumer loans along with a rise in dealer enrollments, Credit Acceptance Corporation‘s CACC revenues are anticipated to improve in the near term. Moreover, its share buyback policy remains impressive, through which the company is expected to continue enhancing its shareholder value.

Additionally, analysts seem optimistic about the company’s earnings growth potential. This is because the Zacks Consensus Estimate for 2020 earnings has been revised 15.9% upward over the past 60 days.

The company currently carries a Zacks Rank #2 (Buy).

Credit Acceptance’s price performance does not seem encouraging. Its shares have lost 15.1% so far this year compared with a 24.5% decline of the industry it belongs to.

Looking at its fundamentals, the company’s top line witnessed a six-year (2014-2019) CAGR of 15.5%, with the uptrend continuing in the first six months of 2020. This improvement was mainly driven by a steady increase in finance charges, which is also the main revenue component. In fact, despite the current economic crisis resulting from the coronavirus outbreak, finance charges are likely to continue improving on the back of higher demand for auto loans.

Moreover, generous growth in dealer enrollments and active dealers is expected to further aid the company’s top line.

Notably, management believes in returning capital to shareholders through stock buybacks instead of dividend payouts. In March 2020, it authorized additional 3 million shares to be repurchased (in addition to the previous authorizations). Despite carrying a substantial debt burden, the company’s high cash flow generating business model and low capital expenditures are likely to help sustain share buybacks going forward.

Nevertheless, persistently escalating operating expenses and deteriorating credit quality remain major concerns for the company. Also, mounting debt load will likely hurt growth and make us apprehensive about its growth prospects.

Other Stocks to Consider

A few other top-ranked stocks from the finance space are mentioned below.

ETRADE Financial Corporation ETFC has witnessed an upward earnings estimate revision of 19% for the current year over the past 60 days. Its share price has increased 4.9% over the past three months. It currently carries a Zacks Rank #2.

Interactive Brokers IBKR has witnessed a northward earnings estimate revision of 29.7% for the current year over the past 60 days. Its share price has rallied 17.6% over the past three months. It currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for TD Ameritrade Holding Corporation’s AMTD current fiscal-year earnings has been revised 18.9% upward over the past 60 days. Its share price has decreased 9.7% over the past three months. The company currently sports a Zacks Rank #1.

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