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Why Is Credit Acceptance (CACC) Down 6.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Credit Acceptance (CACC - Free Report) . Shares have lost about 6.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Credit Acceptance due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Credit Acceptance’s Q3 Earnings Top as Revenues Rise

Credit Acceptance’s 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 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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Credit Acceptance has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Credit Acceptance has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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