Monday, November 19, 2018

A Painful Reset As PRA Group's Performance Remains Lumpy

Even in the best of times, PRA Group (PRAA) isn't the easiest stock to own or follow. The accounting for this large collections company is challenging to learn, and the company itself can't control key performance drivers like credit quality, charged-off receivables supply, or debtors' ability to pay. On top of that, the company is in the middle of a transition period where significant investments in operating costs have yet to be recouped by improved collections across its core and insolvency portfolios.

I model PRA Group with a higher discount rate than I would normally use for a company with its track record, largely to account for the greater uncertainty in modeling. With disappointing results in the third quarter, my fair value range falls from the high-$30s to mid-$40s, down to the mid-$30s to low-$40s, but there are still multiple potentially favorable drivers in play - including increased collections efficiency, improved operating leverage, and growing receivables supply.

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A Painful Reset As PRA Group's Performance Remains Lumpy

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