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On Friday, Stephens analyst Kyle Joseph updated the price target for Credit Acceptance Corp. (NASDAQ:CACC), a $6.23 billion market cap financial services company, to $500 from the previous target of $452, while maintaining an Equal Weight rating on the stock. This adjustment followed the company’s fourth-quarter earnings release, which revealed an adjusted EPS of $10.17, surpassing both Stephens’ estimate of $8.63 and the consensus forecast of $7.93. According to InvestingPro data, the company maintains strong profitability with a 92% gross margin.
Despite the earnings beat, Credit Acceptance’s revenue for the quarter fell slightly short of expectations at $566 million, compared to the estimated $574 million. However, the company managed to report significantly lower expenses of $374 million, well below the anticipated $464 million. This was largely due to a provision that was less than expected, coming in at $123 million versus the forecasted $196.5 million. InvestingPro analysis shows the company’s current valuation appears elevated compared to its Fair Value, with additional insights available in the comprehensive Pro Research Report covering 1,400+ US equities.
The fourth quarter showcased a smaller than anticipated decline in forecasted collection rates and an uptick in the initial spread on recent loan originations, which increased by 70 basis points year-over-year to 22.4%. The company also saw a robust loan growth and a rise in dealer engagement, with the number of active dealers reaching 10,149. InvestingPro Tips highlight the company’s strong liquidity position, with current assets well exceeding short-term obligations, and its consistent profitability over the last twelve months.
On the downside, Credit Acceptance experienced a 4.9% drop in unit volume per active dealer, indicating a resurgence of competition in the market. Nevertheless, the introduction of newer, higher quality loans is expected to replace the problematic 2022 vintage, potentially leading to greater earnings stability in the future. With a return on equity of 14% and analysts forecasting continued profitability, InvestingPro subscribers can access additional financial health metrics and expert analysis to better evaluate the company’s prospects.
In his commentary, Joseph noted the positive trend in loan growth and dealer engagement, but also pointed out the challenges posed by the competitive landscape and the performance of the 2022 loan vintage. He concluded by reiterating the Equal Weight rating and increasing the price target to reflect the company’s potential for greater earnings stability.
In other recent news, Credit Acceptance Corporation significantly outperformed Q4 2024 earnings and revenue expectations. The company reported an earnings per share (EPS) of $10.17, surpassing the forecasted $7.93, and revenue of $565.9 million, exceeding the anticipated $522.6 million. This translates to an EPS beat of 28.25% and a revenue beat of 8.28%.
In addition to these financial highlights, Credit Acceptance has reached a record number of active dealers, adding 902 new ones, and increased its market share in used vehicle subprime financing to 6.1%. Furthermore, the company’s total loan portfolio grew by 15% year-over-year, reaching a record $8.9 billion.
Despite a slight 0.3% decline in forecasted net cash flows, Credit Acceptance maintained steady financial performance. However, it was noted that the 2022 vintage loans underperformed. Looking ahead, Credit Acceptance plans to focus on supporting dealers more effectively and is preparing for potential market changes related to an upcoming election. These are the recent developments for Credit Acceptance Corporation.
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