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PRAA Raised to Strong Buy

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On Jul 6, 2013, Zacks Investment Research upgraded Portfolio Recovery Associates Inc. (PRAA - Free Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Portfolio Recovery reported positive earnings surprise in the last four quarters with an average beat of 8.28%. The long-term earnings growth of the company is presently pegged at 15%.

Portfolio Recovery’s bottom-line results have shown steady improvement over the past few quarters. Strong cash collections drove revenues upward, while an increase in operating income drove operating margin higher.

Moreover, to make the shares more affordable, Portfolio Recovery announced a 3:1 stock split in Jun 2013, which will be conducted on or around Aug 1, 2013. This is the first stock split being implemented by the company, which went public in 2002.

Further, Portfolio Recovery has expanded beyond its primary debt collection business into government collections, audit services and claims settlement with the acquisitions of IGS Nevada, Alatax, Broussard Partners, MuniServices, Claims Compensation Bureau and Mackenzie Hall. The ability to acquire and assimilate businesses in related fields is certainly a long-term positive as the traditional debt collection business matures and becomes more competitive.

We expect Portfolio Recovery to grow 20% year over year in the second quarter of 2013. Consequently, the Zacks Consensus Estimate is currently pegged at $2.24 per share. Over the last 60 days, 2 out of the 5 analysts covering the stock raised their estimates for Portfolio Recovery’s second quarter and full year 2013.

Other Stocks to Consider

Other stocks in the sector that are performing well and are worth a look are Sykes Enterprises, Incorporated (SYKE - Free Report) – Zacks Rank #1 (Strong Buy), Discover Financial Services (DFS - Free Report) – Zacks Rank #2 (Buy) and Regional Management Corp. (RM - Free Report) – Zacks Rank #2 (Buy).

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