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Recently, we reiterated our recommendation on Portfolio Recovery Associates Inc. (PRAA - Analyst Report) at Outperform, based on its improving operational results and increasing financial strength.

Why the Retention?

Estimates for Portfolio Recovery have been steady since the company reported its second-quarter 2013 results on Jul 30. Earnings per share in the reported quarter stood at $2.56, exceeding the Zacks Consensus Estimate by 14.3%. Portfolio Recovery’s revenues also surpassed the Zacks Consensus Estimate by 4.6% and stood at $183 million.

Moreover, both earnings per share and revenues increased from the year-ago results by 36.9% and 24.5%, respectively. The upsurge resulted from strong cash collections fuelling top-line growth, a diversifying product portfolio, strategic acquisitions and an improving bottom line. These positives, in turn, reinforce the long-term expansion plans of the company.

Following the release of the second-quarter results, the Zacks Consensus Estimate for 2013 edged up 2.1% to $3.37 per share in the last 60 days. Additionally, the Zacks Consensus Estimate for 2014 also inched up 2.7% to $3.84 a share. With the estimates for both 2013 and 2014 showing slight upward pressure on the stock in the near term, Portfolio Recovery now has a Zacks Rank #2 (Buy).

However, the Most Accurate Estimate for Portfolio Recovery’s 2013 earnings stands at $3.32 per share, resulting in an Earnings ESP of -1.48%.

Although rising expenses and intense competition deter the desired upside in the stock, Portfolio Recovery’s strong fundamental growth stems from improved organic growth initiatives. Moreover, prudent acquisitions, strong operating cash flow and increased cash and cash equivalents have greatly assisted the company’s growth, thereby boosting investor confidence.

Other Financial Stocks that Warrant a Look

Along with Portfolio Recovery, other stocks in the financial sector that are outperforming include American Express Company (AXP - Analyst Report), Everest Re Group Ltd. (RE - Analyst Report) and Arch Capital Group Ltd. (ACGL - Snapshot Report). Both Everest Re Group and Arch Capital carry a Zacks Rank #1 (Strong Buy), whereas American Express carries a Zacks Rank #2 (Buy).

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