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Analyst Blog

Earlier this week, Portfolio Recovery Associates Inc. (PRAA - Analyst Report) announced the creation of a new subsidiary, PRA Professional Services, LLC, in order to expand its audit and revenue recovery services for the private sector.

The newly-formed company is a wholly-owned subsidiary of Portfolio Recovery and has already received its first assignments of examining and verifying some lease payment agreements with variable payment options for commercial real estate companies.

While PRA Professional Services is Portfolio Recovery’s initial step into private sector auditing, the company has immense experience in auditing and revenue recovery for the public sector.

Additionally, the staff for the subsidiary has been hired from some of the largest accounting firms, where they were working in asset management for considerably long periods of time. Hence, while the new company will likely face teething problems, they are expected to be somewhat ironed out in view of the knowledge and experience of the staff and the holding company.

Over the years, Portfolio Recovery has expanded beyond its primary debt collection business into government collections and auditing, asset recovery and monitoring and filing of class action claims. The ability to acquire and assimilate businesses in related fields is certainly a long-term positive aspect as the traditional debt collection business matures and becomes more competitive.

Portfolio Recovery has been generating strong top-line growth over the recent quarters. The company reported third-quarter 2011 income from continuing operations of $1.48 per share, surpassing the Zacks Consensus Estimate of $1.47 and the prior-year earnings of $1.08 per share.

Moreover, the Zacks Consensus Estimate for fourth quarter earnings stand at $1.52 per share, up 26% over the year-ago quarter. The earnings for 2011 and 2012 are expected to be $5.78 and $6.95, respectively. The company competes with Asta Funding Inc. ( and Exlservice Holdings Inc. (EXLS - Snapshot Report).

Currently, Portfolio Recovery carries a Zacks #3 Rank, implying a short-term Hold rating, with no clear directional pressure over the near term.

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