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Credit Acceptance (CACC) Q3 Earnings Top as Revenues Rise

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Credit Acceptance Corporation’s (CACC - Free Report) third-quarter 2018 earnings of $7.75 per share handily outpaced the Zacks Consensus Estimate of $6.77. Also, the bottom line compared favorably with $5.19 reported a year ago.Both the earnings figures include certain non-recurring items.

Results were aided by an increase in revenues and lower provisions. Also, the balance sheet remained strong during the reported quarter. However, an increase in expenses was the undermining factor.

Excluding certain adjustments, adjusted net income was $147.2 million or $7.56 per share, up from $105.4 million or $5.43 per share in the prior-year quarter.

Revenues Improve, Expenses Rise

Total revenues in the reported quarter were $332 million, up 16.9% year over year. The increase was attributable to rise in all three components of revenues. Also, the reported figure beat the Zacks Consensus Estimate of $326.9 million.

Operating expenses of $71.5 million rose 19.3% from the year-ago quarter. The rise was due to an increase in salaries and wages, and sales and marketing expenses.

Credit Quality: A Mixed Bag

Provision for credit losses decreased 45.5% year over year to $14 million. However, allowance for credit losses at the end of the reported quarter was $447.6 million, up from $429.4 million as of Dec 31, 2017.

Strong Balance Sheet

As of Sep 30, 2018, net loans receivable amounted to $5.6 billion, increasing from $4.6 billion as of Dec 31, 2017.

Total assets were $6.2 billion as of the same date, increasing from $5 billion as of Dec 31, 2017. Also, total stockholders’ equity was $2 billion, up from $1.5 billion as of the end of December 2017.

Our Take

Credit Acceptance is well poised for growth in revenues given the continued rise in consumer loans. Furthermore, backed by a solid capital position, the company is expected to enhance shareholder value through continued share repurchases. However, increasing expenses might hurt bottom-line growth to some extent. Moreover, the use of high debt remains a matter of concern.

Credit Acceptance Corporation Price, Consensus and EPS Surprise

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 Finance Companies

Sallie Mae (SLM - Free Report) reported third-quarter 2018 core earnings of 23 cents per share, in line with the Zacks Consensus Estimate. Increase in net interest income, aided by rising rates, was a tailwind. However, these positives were offset by elevated expenses, poor credit quality and non-interest loss.

Capital One’s (COF - Free Report) third-quarter 2018 adjusted earnings of $3.12 per share easily surpassed the Zacks Consensus Estimate of $2.89. Results benefited from rise in net interest income and strength in card business. Further, a decline in provision for credit losses and improving loans and deposits were the tailwinds. However, lower non-interest income and an increase in operating expenses hurt the results to some extent.

Ally Financial Inc.’s (ALLY - Free Report) third-quarter 2018 adjusted earnings of 91 cents per share surpassed the Zacks Consensus Estimate of 80 cents. Results benefited from an increase in total net revenues and lower provisions. However, higher expenses witnessed during the third quarter hurt results to some extent.

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