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Higher Finance Charges to Aid Credit Acceptance's (CACC) Top Line

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On Mar 25, 2021, we issued an updated research report on Credit Acceptance Corporation (CACC - Free Report) . Supported by the rise in demand for auto loans along with a decent rise in dealer enrollments and active dealers, the company’s revenues are expected to continue to improve in the near term. Moreover, its share-buyback policy remains impressive.

Analysts have a neutral stance toward the stock. The Zacks Consensus Estimate for the company’s 2021 earnings has been unchanged over the past seven days. It currently sports a Zacks Rank #1 (Strong Buy).

Over the past six months, shares of Credit Acceptance have gained 11.7% compared with 58.9% growth recorded by the industry it belongs to. Given the strength in its fundamentals and a top Zacks Rank, the company’s price performance is expected to improve in the near term.






Looking at its fundamentals, Credit Acceptance’s top line witnessed a five-year (2016-2020) compound annual growth rate of 14.6%, primarily driven by the steady increase in finance charges. Notably, finance charges are the company’s main revenue component (accounting for almost 94% of total revenues in 2020). Supported by the rise in demand for auto loans along with a decent rise in dealer enrollments and active dealers, revenues are expected to continue to improve.

Notably, management believes in returning capital to shareholders through stock repurchases instead of paying dividends. In March 2020, it authorized additional 3 million shares to be repurchased. As of Dec 31, 2020, the company had 2.5 million shares left to be repurchased. Thus, despite having a substantial debt burden, its high cash flow generating business model and low capital expenditure are likely to help sustain share buybacks, going forward.

However, persistently increasing operating expenses and deteriorating credit quality remain major concerns for the company. Also, high debt levels might hurt growth and, hence, make us apprehensive about the company’s prospects.

Other Stocks to Consider

A few other top-ranked stocks from the finance space are mentioned below.

Hope Bancorp, Inc. (HOPE - Free Report) has witnessed an upward earnings estimate revision of 22% for 2021 over the past 60 days. Its shares have gained 99.3% over the past six months. The company currently flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Waddell & Reed Financial, Inc.’s 2021 earnings estimates have increased 6.6% over the past 60 days. The company’s shares have gained 67.6% over the past six months. At present, it carries a Zacks Rank #2 (Buy).

The Goldman Sachs Group, Inc. (GS - Free Report) has witnessed an upward earnings estimate revision of 3.3% for the current year over the past 60 days. It currently carries a Zacks Rank of 2. The stock has gained 66.1% over the past six months.

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In-Depth Zacks Research for the Tickers Above


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The Goldman Sachs Group, Inc. (GS) - free report >>

Credit Acceptance Corporation (CACC) - free report >>

Hope Bancorp, Inc. (HOPE) - free report >>