Maybe it’s looking a gift horse in the mouth, but PRA Group’s (PRAA) strong third-quarter results came with some caveats - namely the question of whether underlying collection performance on receivables has fundamentally improved and when (and how much) supply will improve for the company. Given all of the unusual factors playing into 2020 results, it’s all but impossible to gauge underlying collections performance, and while charge-offs should accelerate in 2021, “should” only gets you so far.
I though PRA Group shares were pretty fairly valued back when I last wrote on the shares, and the shares are down about 15% since then. I can see two opposing potential drivers (apart from just profit-taking) - bank reports on reserves and charge-offs have been pretty mild (suggesting weaker forward supply), while gridlock in Washington has halted meaningful progress on further stimulus (hurting debtors’ ability to pay). While I acknowledge some pretty substantial unknowns in the model, I do believe that fair value remains in the low-to-mid-$40s, making PRA Group undervalued enough to consider today.
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Another Strong Collection Quarter For PRA Group, But Trends Remain Hard To Read
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