Recently, the board of Portfolio Recovery Associates Inc. (PRAA) approved a 3:1 stock split, which will be conducted on or around Aug 1, 2013. The stock split will be structured as a stock dividend, to be paid to shareholders of record as of Jul 1, 2013.
Consequently, the eligible shareholders will receive two shares for every Portfolio Recovery share held by them. This is the first stock split being implemented by the company, which went public in 2002.
Portfolio Recovery had around 17 million shares outstanding as of Mar 31, 2013, amounting to shareholder equity of $0.17 million. Thus, after the stock split, the company will have about 51 million outstanding shares. However, the shareholder equity will remain unaffected by the split.
Further, as a result of the increase in the number of outstanding shares, the earnings per share of Portfolio Recovery will fall. Nevertheless, this fall does not indicate any weakness in the company’s earnings, as the total earnings as well as the fundamental strength of the company remains the same.
However, the stock split will reduce the price per share, thus making the shares of Portfolio Recovery more affordable. As a result, a larger number of potential investors will be able to buy the shares. Moreover, with a fall in prices, the bid-ask spread will also reduce. Based on these factors, the liquidity of the shares will increase.
Portfolio Recovery carries a Zacks Rank #2 (Buy). Other companies in the business services sector that are worth considering are Barrett Business Services Inc. (BBSI) – Zacks Rank #1 (Strong Buy), Sykes Enterprises, Incorporated (SYKE) – Zacks Rank #1 (Strong Buy) and Convergys Corporation (CVG) – Zacks Rank #2 (Buy).
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