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Why Should You Retain PRA Group (PRAA) in Your Portfolio?

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PRA Group, Inc. (PRAA - Free Report) has been in investors’ good books owing to rising receivable income and expansion via buyouts.

It is well-poised for growth, evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

The company’s earnings managed to surpass the Zacks Consensus Estimate in all the trailing four quarters, the average being 20.8%.

It recently delivered first-quarter 2020 earnings per share of 42 cents, beating the Zacks Consensus Estimate by 35.5% and also improving 23.5% year over year, primarily owing to better top-line growth. Revenues of $252 million inched up 2.4% from the year-ago quarter, courtesy of high portfolio income. The company’s cash collection of $494.6 million climbed 7.2% from the figure reported in the first quarter of 2019 on the back of higher contributions by Americas Core, Europe Core and Europe Insolvency.

The company has been witnessing growth in its receivable income for the past many years owing to robust results delivered by select Americas Core plus Europe Core portfolios. PRA Group expects improved portfolio volumes in 2020 despite the COVID-19 pandemic-induced turmoil in the market. Given the company’s solid fundamentals, we expect this uptrend to likely benefit its top line going forward.

PRA Group’s growth trajectory also impresses. It has taken its presence beyond the primary debt-collection business and stepped into government collections and audit services. It acquired the holding company of Resurgent Holdings LLC's Canadian business in March 2019, which has created an advanced nonperforming loan business in Canada. In the first quarter of 2020, the company spent a total of $273.2 million on acquisitions of finance receivables.

Its cash collection has also been rising over the past many years. This trend continued in the first quarter as well with total cash collections of $494.6 million increasing 7.2% from the figure reported in the prior-year quarter. This upside was mainly driven by 16% growth in Europe cash collections and a 10% rise in the U.S. legal channel. Notably, PRA Group expects to achieve a cash efficiency ratio of 61% in 2020. However, the company expects to witness delayed cash collections due to the COVID-19 pandemic.

For the current year, the Zacks Consensus Estimate for earnings stands at $2.42, hinting at 28% improvement from the year-earlier reported figure while the same for revenues is pegged at $1.1 billion, suggesting an upside of 3.8% from the prior-year reported number.

Shares of this Zacks Rank #3 (Hold) company have gained 10.3% in a year's time against its industry's decline of 25.7%.

The performance looks better than other companies’ returns in the same space, such as Virtu Financial Inc. (VIRT - Free Report) , Oaktree Specialty Lending Corp (OCSL - Free Report) and American Express Company (AXP - Free Report) , which have lost 7%, 25% and 27.3%, respectively. The three stocks have a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 each. You can see the complete list of today’s Zacks #1 Rank stocks here.

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