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Why Is Credit Acceptance (CACC) Up 15% 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 added about 15% in that time frame, outperforming the S&P 500.

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

Credit Acceptance Incurs Q1 Loss as Provisions Jump

Credit Acceptance incurred first-quarter 2020 loss of $4.61 per share against the Zacks Consensus Estimate of earnings of $4.15. The figure includes certain non-recurring items.

The results were adversely impacted by a significant increase in provisions. However, an improvement in revenues and lower expenses were tailwinds.

Excluding non-recurring items, net income (non-GAAP basis) was $175.7 million or $9.66 per share, up from $153.6 million or $8.08 per share in the prior-year quarter.

Revenues Rise, Expenses Down

Total revenues were $389.1 million, up 10% year over year. This increase was largely driven by a rise in finance charges. Also, the figure beat the Zacks Consensus Estimate of $339.4 million.

Operating expenses of $79.1 million declined 2.8% from the prior-year quarter. The decline in expenses was mainly due to lower salaries and wages.

As of Mar 31, 2020, net loans receivable amounted to $6.6 billion, down 1% from the prior quarter. Total assets were $7.3 billion as of the same date, declining 2% sequentially. Total stockholders’ equity was $2 billion, down 16.5% from the prior quarter.

Credit Quality Deteriorates

Provision for credit losses surged substantially from the year-ago quarter to $354.7 million. The rise was mainly due to the adoption of CECL on Jan 1, 2020 and the impact of a reduction in expected future cash flows from its loan portfolio.

Allowance for credit losses at first quarter-end was $3.2 billion, up significantly year over year.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 59.85% due to these changes.

VGM Scores

At this time, Credit Acceptance has a subpar Growth Score of D, 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise 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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