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Analyst Blog

Recently, the board of Encore Capital Group Inc. (ECPG - Snapshot Report) has authorized a new share repurchase program, under which the company can spend up to $50 million for share buybacks. The authorization is expected to be fully utilized by the end of 2013.

According to the new buyback plan, the shares can be repurchased from the open market, through private or block transactions or using any other buyback process. However, the buyback is dependent on market conditions, business-related concerns as well as appropriate regulations.

The new repurchase program is consistent with Encore Capital’s policy of maximizing returns to shareholders through efficient deployment of capital. The company’s strong financial results and impressive asset position allow it to utilize market conditions to enhance shareholders’ returns.

Encore Capital’s ability to invest in market opportunities to boost shareholder value has been further enhanced by its new credit facility that has augmented the company’s borrowing capacity. Last week, the company announced the amendment of its old $555.5 million revolving credit facility, which was set to expire by the end of 2013.

The amended facility comprises a $425 million revolving credit facility valid for 5 years along with a $100 million term note due in November 2017 and a $50 million term note due in November 2015. Moreover, Encore Capital has the option of increasing the borrowing limit by $200 million using the accordion feature of credit facility. Thus, the company has ample financial flexibility to engage in share repurchases.

Encore Capital’s peer in the receivables management and recovery business – Portfolio Recovery Associates Inc. (PRAA - Analyst Report) – also engages in share repurchases to boost shareholder value. The company had authorized a $100 million share repurchase program in February this year. Consequently, the company repurchased 331,449 shares at an average price of $68.56 during the first nine months of 2012.

Encore Capital currently carries a Zacks #3 Rank (short-term Hold). We have a long-term ‘Neutral’ recommendation on the stock.

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