A month has gone by since the last earnings report for Credit Acceptance (CACC - Free Report) . Shares have lost about 1.7% 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 Q3 Earnings, Revenues Lag Estimates
Credit Acceptance’s third-quarter 2019 earnings of $8.73 per share missed the Zacks Consensus Estimate of $9.13. However, the bottom line was up 12.6% year over year. Notably, the figure includes certain non-recurring items.
Results reflect solid revenue growth on the back of rise in loan balance. However, an increase in operating expenses and higher provision for credit losses remained headwinds.
Excluding the non-recurring items, net income (non-GAAP basis) was $168.4 million or $8.89 per share, up from $147.2 million or $7.56 per share in the prior-year quarter.
GAAP Revenues & Expenses Rise
Total revenues were $378.7 million, up 14.1% year over year. This increase was largely driven by rise in finance charges. However, the reported figure lagged the Zacks Consensus Estimate of $382 million.
Operating expenses of $81.7 million rose 14.3%. An increase in all cost components led to the rise.
Credit Quality Deteriorates
Provision for credit losses increased 37.9% from the year-ago quarter to $19.3 million. Moreover, allowance for credit losses at the end of the third quarter was $509.1 million, up from $461.9 million as of Dec 31, 2018.
Strong Balance Sheet
As of Sep 30, 2019, net loans receivable amounted to $6.6 billion, increasing from $5.8 billion as of Dec 31, 2018.
Total assets were $7.1 billion as of the same date, increasing from $6.2 billion on Dec 31, 2018. Also, total stockholders’ equity was $2.4 billion, up 19.7% from the end of December 2018.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, Credit Acceptance has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Credit Acceptance has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.