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On Tuesday, Citizens JMP analyst David Scharf adjusted the price target for Portfolio Recovery Associates (NASDAQ:PRAA) to $23 from the previous $30, while keeping a Market Outperform rating on the stock. According to InvestingPro data, the stock is currently trading near its 52-week low, with a significant 22% decline over the past six months. The revision follows PRA Group’s first-quarter performance, which, despite showcasing strong purchase volumes and notable strength in Europe, experienced a shortfall in U.S. collections leading to a significant earnings miss.
PRA Group reported operational trends in the first quarter of 2025 that aligned with the patterns observed over the past year, such as robust purchase volumes, impressive growth in European markets, and double-digit increases in collections and cash earnings. The company’s revenue growth reached an impressive 38.87% over the last twelve months, with a gross profit margin of 100%. However, U.S. collections fell short of expectations by 4%, resulting in an earnings discrepancy, with actual earnings of $0.09 compared to the anticipated $0.54, a figure that was the highest among street estimates. InvestingPro analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report covering over 1,400 US stocks.
The analyst pointed out that the company’s adjusted EBITDA was relatively stable, but the earnings were heavily impacted by the Current Expected Credit Loss (CECL) accounting method. This approach means that even a slight difference in the Change in Expected Recoveries can significantly affect GAAP earnings. Management at PRA Group noted that the tax refund season this year was typical and did not show any signs of altered U.S. collection behavior. The lower earnings were attributed to an inaccurate model of the first-quarter seasonal collections in the U.S., although collections in Europe exceeded forecasts by 10%.
Despite the challenges in the U.S. market, PRA Group’s management has not observed any shifts in U.S. collection patterns. The earnings shortfall was solely ascribed to the company’s miscalculation of this year’s first-quarter seasonality in the U.S. collections. The company maintains a strong financial position with a current ratio of 12.14, indicating liquid assets well exceed short-term obligations. Additionally, InvestingPro reports two analysts have revised their earnings upward for the upcoming period, with the company expected to remain profitable this year.
In light of the first-quarter results, PRA Group’s management has revised its full-year guidance for Return on Average Tangible Equity, reducing the forecast from 12% to below that threshold. This adjustment reflects a cautious stance post-tariff and takes into account the impact of the first-quarter earnings miss on the company’s annual projections.
In other recent news, Portfolio Recovery Associates released its first-quarter 2025 financial results, which fell short of Wall Street expectations. The company reported an earnings per share (EPS) of $0.09, significantly below the analyst estimate of $0.44, and revenue of $269.62 million, missing the projected $291.14 million. Despite a 19% increase in portfolio purchases and a record estimated remaining collections of $7.8 billion, lower-than-expected cash collections in the U.S. affected profitability. Analysts from Citizens JMP and Raymond (NSE:RYMD) James maintained their respective Market Outperform and Market Perform ratings, though Citizens JMP lowered its price target from $30.00 to $23.00. The company’s net income increased by 5.3% year-over-year to $3.7 million, and total cash collections rose 10.7% year-over-year to $497.4 million. PRA Group’s press release highlighted strong performance in Europe and the appointment of a new CEO, Martin Sjolund, who is expected to bring a successful European strategy to the global stage. The company remains confident in its business trajectory, maintaining most financial targets but adjusting expectations for return on average tangible equity to be lower than the previous target of approximately 12%.
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