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Should You Dump PRA Group (PRAA) Stock After a Weak Q2?

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On Aug 10, 2016, Zacks Investment Research downgraded PRA Group Inc. (PRAA - Free Report) to a Zacks Rank #4 (Sell).

Why the Downgrade?

PRA Group has been witnessing sharp downward estimate revisions over the last 7 days. With respect to the surprise trend, the company missed estimates in three of the last four quarters with an average negative surprise of 6.72%.

The company’s second-quarter 2016 earnings per share of 83 cents were in line with the Zacks Consensus Estimate but declined 23% from the year-ago quarter. Total revenue declined 3.8% year over year, mainly due to two non-accrual portfolios in Italy. These added cash collections of $6.7 million to principal amortization.

Cash collections dipped 0.6%, mainly due to lower collections at Americas-Insolvency and America-Core in the second quarter.

Additionally, revenues from finance receivables income as well as other revenues decreased.

Added to its woes, operating expenses rose 4.7% year over year on higher legal collection fees, agency fees, outside fees and services, communication, rent and occupancy expenses, depreciation & amortization and other operating expenses. The company has experienced negative operating leverage in the last few years due to the global economic crisis. Also, rise in borrowing costs and increasing leverage resulted in a 53% hike in interest expenses.

Given the highly fragmented and competitive nature of the accounts receivable management industry, PRA Group faces ample challenges in acquiring defaulted consumer receivables and obtaining placement of fee-for-service receivables.

The Zacks Consensus Estimate for both 2016 and 2017 moved down as most of the estimates were revised lower over the last 30 days. The same moved down 2.08% to $3.29 per for 2016 and 1.8% to $3.80 per share for 2017.

PRA GROUP INC Price and Consensus

PRA GROUP INC Price and Consensus | PRA GROUP INC Quote

Stocks to Consider

Some better-ranked stocks from the finance sector are Euronet Worldwide, Inc (EEFT - Free Report) , ORIX Corporation (IX - Free Report) and Credit Acceptance Corp (CACC - Free Report) . Both Euronet and ORIX hold Zacks Rank #2 (Buy), while Credit Acceptance sports Zacks Rank #1 (Strong Buy).

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