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Credit Acceptance (CACC) Q2 Earnings Beat, Provisions Rise

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Credit Acceptance Corporation (CACC - Free Report) reported second-quarter 2020 earnings of $5.40 per share, beating the Zacks Consensus Estimate of $4.65. The company recorded earnings of $8.68 per share in the prior-year quarter. Notably, the figure includes certain non-recurring items.

Increase in revenues and lower operating expenses supported results. Moreover, the balance sheet remained strong during the second quarter. However, a significant increase in provisions remained a major headwind.

Excluding non-recurring items, net income (non-GAAP basis) was $154.1 million or $8.63 per share, down from $162.9 million or $8.60 per share in the prior-year quarter.

GAAP Revenues Increase, Expenses Fall

Total revenues were $406.3 million, up 9.6% year over year. The increase was largely driven by a rise in finance charges. Also, the figure beat the Zacks Consensus Estimate of $372.7 million.

Operating expenses of $81.6 million declined slightly from the prior-year quarter. Lower general and administrative attributed to the fall.

As of Jun 30, 2020, net loans receivable amounted to $6.7 billion, up 2% from the prior quarter. Total assets were $7.3 billion as of the same date, which increased 1.1% sequentially. Also, total stockholders’ equity was $2 billion, up 5% from the prior quarter.

Credit Quality Deteriorates

Provision for credit losses surged substantially from the year-ago quarter to $139.4 million. The rise was mainly due to the adoption of CECL on Jan 1, 2020, and the impact of a reduction in expected future cash flows from its loan portfolio.

Allowance for credit losses at the second-quarter end was $3.4 billion, up significantly year over year.

Our Viewpoint

Credit Acceptance is well-poised for revenue growth, given the persistent rise in consumer loans. However, elevated expenses and deteriorating asset quality are key near-term concerns.

Credit Acceptance Corporation Price, Consensus and EPS Surprise


Credit Acceptance Corporation Price, Consensus and EPS Surprise

Credit Acceptance Corporation price-consensus-eps-surprise-chart | Credit Acceptance Corporation Quote

Currently, Credit Acceptance carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Consumer Loan Stocks

Capital One (COF - Free Report) reported second-quarter 2020 adjusted loss of $1.61 per share, wider than the Zacks Consensus Estimate of a loss of $1.25. The year-ago quarterly earnings were $3.37 per share.

Sallie Mae (SLM - Free Report) reported second-quarter 2020 loss per share of 22 cents (on core basis) as against earnings of 31 cents reported in the prior-year quarter. The Zacks Consensus Estimate was pegged at earnings of 6 cents.

Ally Financial’s (ALLY - Free Report) second-quarter 2020 adjusted earnings of 61 cents per share handily surpassed the Zacks Consensus Estimate of 18 cents. However, the figure declined from the year-ago reported figure of 97 cents per share.

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