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Why Should You Steer Clear of PRA Group (PRAA) Stock Now?

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PRA Group, Inc. (PRAA - Free Report) is persistently suffering escalating expenses and a poor solvency level.

Over the past 30 days, PRAA has witnessed its 2022 and 2023 earnings estimate move 4.5% and 16.3% south, respectively, indicative of brokers’ pessimism on the stock.

Headquartered in Norfolk, VA, and incorporated in Delaware, PRA Group is a global financial and business services company in the Americas, Australia and Europe.

Its return on equity (ROE) undermines its growth potential. PRAA’s trailing 12-month ROE of 13% not only deteriorated over the years but also compares unfavorably with the industry average of 23.2%, indicating that it is less efficient in utilizing its shareholders’ funds.

What’s Bothering the Stock?

Its expenses have been weighing down the margins for the past many years. Although the same decreased to some extent in 2020 due to lower activities, it again rose 0.7% year over year in 2021. Given the current scenario, costs are likely to remain elevated due to growth-related investments.

Another reason behind the air of negativity surrounding the stock is higher leverage, which shot up interest expenses and induced a weak solvency level. Its debt-to-capital stands at 67.4%, higher than its industry's average of 48.9%.

At fourth-quarter 2021end, PRA Group had only $87.5 million of cash and cash equivalents. Its borrowings were recorded at $2.6 billion as of Dec 31, 2021. Its times interest earned stands at 3.02X, lower than the industry's average of 16.22X.

In the last reported quarter, revenues dropped 6.2% year over year due to lower portfolio income. The fourth-quarter results also reflected lower cash collections.

The consensus mark for 2022 earnings indicates a downside of 31.93% while the same for revenues implies a downside of 10.77% from the corresponding year-ago reported figures.

Shares of this currently Zacks Rank #5 (Strong Sell) player have lost 10.2% in the year-to-date period, wider than its industry's dip of 0.6%.

Zacks Investment Research
Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks in the finance space are MVB Financial Corp. (MVBF - Free Report) , Axos Financial, Inc. (AX - Free Report) and Oaktree Specialty Lending Corporation (OCSL - Free Report) . While MVB Financial flaunts a Zacks Rank #1 (Strong Buy), Axos Financial and Oaktree Specialty Lending carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

MVB Financial delivered a trailing four-quarter earnings surprise of 73.73%, on average. The Zacks Consensus Estimate for MVBF’s 2022 earnings has moved 58.9% north in the past 30 days.

The bottom line of Axos Financial outpaced estimates in each of the last four quarters, the average being 9.62%. The Zacks Consensus Estimate for AX’s 2022 earnings suggests an improvement of 8.7%, while the same for revenues implies growth of 9.8% from the corresponding year-ago reported figures. The consensus mark for 2022 earnings has moved 1.3% north in the past 60 days.

Oaktree Specialty Lending has witnessed its 2022 earnings estimate move 1.5% north over the past 60 days. OCSL’s earnings outpaced estimates in each of the last four quarters, the average being 12.2%.

Shares of MVB Financial, Axos Financial and Oaktree Specialty Lending have lost 0.1%, 17% and 1.2%, respectively, in the year-to-date period.