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Summary

  • Q2 2014 EPS reported of $0.87 per share is up 2% Y/Y.
  • Q2 revenue came in at $197.3 million, up 7.8% Y/Y.
  • Q2 earnings have changed my earlier opinion of the stock.

PRA Group (NASDAQ:PRAA) reported earnings today that missed estimates by a little bit. EPS came in at $0.87, which was three cents below analyst estimates. Revenue came in at $197.3 million, which was $2.59 million below estimates. ROE came in at 18.7% (excluding one-time costs).

In its earnings press release, PRA noted under "portfolio acquisitions" that:

PRA invested $109.2 million in new finance receivables from North American and U.K. creditors in the second quarter of 2014, compared with $200.5 million in the year-ago quarter. Receivables purchased were acquired in 85 portfolios from 14 different sellers.

In my previous article about PRA Group titled "Portfolio Recovery Associates: Is It Still A Buy?", I noted that management had been exceptional in the past at keeping ROE over 20% and EPS growth over 15%. That is now slipping. In addition, the portfolio acquisitions have fallen dramatically. On the other hand, the Aktiv Kapital acquisition is expected to be accretive to earnings and that will hopefully begin to show next quarter.

I am changing my stance on PRAA from buy to hold at this point due to the Q2 earnings report. While I think the company is likely to bounce back its ROE, there is no getting around the smaller amount of portfolio purchases. PRA Group has previously stated that availability of debt should increase in 2015, but until that happens I am neutral on PRAA.

Disclosure: The author is long PRAA. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.