It's getting harder and harder to defend PRA Group (NASDAQ:PRAA). It's bad enough that cash collections remain weak, particularly in the Americas Core segment, but I'm troubled by the ongoing weakness in efficiency, the ongoing valuation allowances, and the divergence in performance from rival Encore (NASDAQ:ECPG). What's more, there's no concrete evidence that market conditions are going to move in a PRA-friendly direction anytime soon, and the CFPB seems likely to make life more difficult for the company.
I still see a fair value in the mid-to-high $30s as reasonable. Such a valuation assumes that performance improves meaningfully from recent levels, although not to the levels seen in 2004-2014. That said, for PRA to hit those targets, management must buy smarter, collect more effectively, and better manage expectations. None of this is guaranteed, so while the upside here remains meaningful, it comes at the cost of significant uncertainty.
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Another Uninspiring Quarter From PRA Group