We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
PRA Group's (PRAA) Rising Debt and Expenses Raise Concerns
Read MoreHide Full Article
On Mar 6, 2017, we issued an updated research report on PRA Group, Inc. (PRAA - Free Report) .
During the fourth quarter, the company incurred an operating loss of 33 cents per share. It had posted operating earnings of $1.03 per share in the year-ago quarter. The Zacks Consensus Estimate was pegged at operating earnings of 68 cents per share for the fourth quarter. The bottom line deteriorated mainly due to a substantial decline in revenues.
The PRA Group stock seems to have fallen out of favor with investors as its price performance has been weak over the last one year. The stock has only gained 9.1%, while the Financial Miscellaneous Services industry registered growth of 26%. Since the stock has released fourth-quarter results, its shares have lost 17% compared with 0.24% decrease for the broader industry.
The company’s quarterly loss and share price depreciation are likely to have stemmed from a number of headwinds. The company has been witnessing a rise in operating expenses. This, in turn, has significantly affected the company’s margin.
Operating margin contracted 38.8% in 2014, 32.9% in 2015, and 26.3% in 2016. PRA Group needs to achieve a higher level of increase in total revenue than expense in order to protect its operating margin.
Another concern for the company is its rising debt level that has led to a continuous increase in interest expenses. In 2016, interest expenses increased 35% year over year to $81 million and borrowings rose 4% to $1.8 billion 2016. The rise in debt financing has not only made the company vulnerable to adverse economic conditions or industry hazards but also drained a significant portion of its operating cash flow to service debt payments.
The stock has also been overvalued than its peers in some respect. PRA Group is currently trading at 1.79X price to book value multiple. This is expensive when compared with the Zacks categorized Financial Miscellaneous Services industry’s multiple of 1.48X. Moreover, the Price to Cash Flow (PCF) ratio for the stock is 10.59, which is significantly higher than the industry average of 3.71.
We also believe that the company’s decision to sell the Government Services Fee-for-Service business will likely to affect both of its revenues and margins. The government business has been significantly contributing to the top line since 2012. The income from fee-for-service business displayed a year-over-year improvement of 20% in 2016, thereby maintaining the uptrend. Hence, the divesture might weaken the company’s underwriting results going forward.
PRA Group presently has a Zacks Rank #5 (Strong Sell). Since the release of its fourth-quarter results, the Zacks Consensus Estimate of both 2017 and 2018 has been witnessing downward revisions. While estimates for 2017 have declined 20%, those for 2018 moved down by 25%.
Stocks to Consider
Some better-ranked stocks from finance sector include American Financial Group, Inc. (AFG - Free Report) , Everest Re Group, Ltd. and Selective Insurance Group, Inc. (SIGI - Free Report) . While American Financial and Selective Insurance sport a Zacks Rank #1 (Strong Buy), Everest Re holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American Financial offers P&C insurance products in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 6.45%.
Selective Insurance provides insurance products and services in the United States. The company delivered a positive surprise in one of the last four quarters but with an average negative surprise of 4.53%.
Everest Re offers reinsurance and insurance products. The company delivered positive surprises in three of the last four quarters with an average beat of 43.49%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
PRA Group's (PRAA) Rising Debt and Expenses Raise Concerns
On Mar 6, 2017, we issued an updated research report on PRA Group, Inc. (PRAA - Free Report) .
During the fourth quarter, the company incurred an operating loss of 33 cents per share. It had posted operating earnings of $1.03 per share in the year-ago quarter. The Zacks Consensus Estimate was pegged at operating earnings of 68 cents per share for the fourth quarter. The bottom line deteriorated mainly due to a substantial decline in revenues.
The PRA Group stock seems to have fallen out of favor with investors as its price performance has been weak over the last one year. The stock has only gained 9.1%, while the Financial Miscellaneous Services industry registered growth of 26%. Since the stock has released fourth-quarter results, its shares have lost 17% compared with 0.24% decrease for the broader industry.
The company’s quarterly loss and share price depreciation are likely to have stemmed from a number of headwinds. The company has been witnessing a rise in operating expenses. This, in turn, has significantly affected the company’s margin.
Operating margin contracted 38.8% in 2014, 32.9% in 2015, and 26.3% in 2016. PRA Group needs to achieve a higher level of increase in total revenue than expense in order to protect its operating margin.
Another concern for the company is its rising debt level that has led to a continuous increase in interest expenses. In 2016, interest expenses increased 35% year over year to $81 million and borrowings rose 4% to $1.8 billion 2016. The rise in debt financing has not only made the company vulnerable to adverse economic conditions or industry hazards but also drained a significant portion of its operating cash flow to service debt payments.
The stock has also been overvalued than its peers in some respect. PRA Group is currently trading at 1.79X price to book value multiple. This is expensive when compared with the Zacks categorized Financial Miscellaneous Services industry’s multiple of 1.48X. Moreover, the Price to Cash Flow (PCF) ratio for the stock is 10.59, which is significantly higher than the industry average of 3.71.
We also believe that the company’s decision to sell the Government Services Fee-for-Service business will likely to affect both of its revenues and margins. The government business has been significantly contributing to the top line since 2012. The income from fee-for-service business displayed a year-over-year improvement of 20% in 2016, thereby maintaining the uptrend. Hence, the divesture might weaken the company’s underwriting results going forward.
PRA Group presently has a Zacks Rank #5 (Strong Sell). Since the release of its fourth-quarter results, the Zacks Consensus Estimate of both 2017 and 2018 has been witnessing downward revisions. While estimates for 2017 have declined 20%, those for 2018 moved down by 25%.
Stocks to Consider
Some better-ranked stocks from finance sector include American Financial Group, Inc. (AFG - Free Report) , Everest Re Group, Ltd. and Selective Insurance Group, Inc. (SIGI - Free Report) . While American Financial and Selective Insurance sport a Zacks Rank #1 (Strong Buy), Everest Re holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American Financial offers P&C insurance products in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 6.45%.
Selective Insurance provides insurance products and services in the United States. The company delivered a positive surprise in one of the last four quarters but with an average negative surprise of 4.53%.
Everest Re offers reinsurance and insurance products. The company delivered positive surprises in three of the last four quarters with an average beat of 43.49%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>