Encore Capital Q3 Earnings Miss Estimates on Lower Purchases by Cabot

Friday, November 8, 2024

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 16 major stocks, including Oracle Corp. (ORCL), Micron Technology, Inc. (MU) and Medtronic plc (MDT), as well as a micro-cap stock The Cato Corp. (CATO). The Zacks microcap research is unique as our research content on these small and under-the-radar companies is the only research of its type in the country.

These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.

You can see all of today’s research reports here >>>

Oracle’s shares have outperformed the Zacks Computer - Software industry over the year-to-date period (+78.9% vs. +18.8%). The company’s stock hit record high of $160.52 a share following strong fiscal Q1 2025 results, driven by solid adoption of strategic cloud applications, autonomous database offerings and Oracle Cloud Infrastructure and recovery in cloud revenue growth.

ORCL’s continued investment in cloud infrastructure positions it well for sustained growth in the dynamic software industry. The recent partnership with Amazon for Oracle Database@AWS and general availability of Oracle Database@Google bodes well. Oracle’s Gen 2 Cloud is driving AI clientele. Its share buybacks and dividend policy are noteworthy.

The Zacks analyst expect fiscal 2025 net sales to grow 8.7% from fiscal 2024. However, higher spending on product enhancements, especially toward the cloud platform amid increasing competition in the cloud domain. is likely to limit margin expansion.

(You can read the full research report on Oracle here >>>)

Shares of Micron Technology have outperformed the Zacks Computer - Integrated Systems industry over the year-to-date period (+33.3% vs. +18.1%). The company is gaining from improved market conditions, strong sales executions and robust growth across multiple business units. The positive impact of inventory improvement in the data center and stabilization in other end markets, such as automotive, industrial and others, is adding to top-line growth.

Micron expects the pricing of DRAM and NAND chips to surge next year, which will boost its revenues. The pricing benefits should mainly be driven by the high demand for AI servers, which are causing a scarcity in the availability of DRAM and NAND supply.

Also, 5G adoption in the Internet of Things devices and wireless infrastructure is expected to spur demand for memory and storage. However, the United States and China’s tit-for-tat trade war is a major threat to the company.

(You can read the full research report on Micron Technology here >>>)

Medtronic’s shares have gained +9.7% over the year-to-date period against the Zacks Medical - Products industry’s gain of +15.0%. The company is strategically expanding its global presence to address the unmet demand for advanced medical devices. Within Cardiovascular, Medtronic is gaining market share, banking on product launches in CRM and Structural Heart.

Hypertension has brought up multibillion-dollar opportunities for MDT. In MedSurg, Medtronic is scaling the production of Hugo RAS. The Surgical and Neuroscience portfolios continues to contribute positively. Further, the company’s Pacing business continued to drive strong growth banking on strong global growth of its Micra leadless pacemaker.

Innovations and market expansion efforts are helping it offset the impact of the inflation and supply disruptions. Medtronic’s strong liquidity position should allow it to meet its near-term debt obligations. All these factors support our bullish stance on the stock.

(You can read the full research report on Medtronic here >>>)

Shares of Cato have gained +2.5% over the past year period against the Zacks Retail - Apparel and Shoes industry’s gain of +26.6%. This microcap company with market capitalization of $129.79 million have strong financial position, with $30.8 million in cash and $69.9 million in working capital, enhances its operational stability and ability to invest in future growth.

Improved cost control, with a 7% reduction in SG&A expenses, has bolstered profitability, and net income nearly doubled to $11.1 million for the first half of 2024. The company's disciplined inventory management minimizes markdown risk, preserving margins. Cato’s consistent dividend payments underscore its financial health. Additionally, it is well-positioned to benefit from expected growth in the global apparel market.

However, challenges persist with an 8% sales decline due to store closures, weak e-commerce performance (less than 5% of total sales) and inflationary pressures affecting consumer spending. Cato’s reliance on physical stores and exposure to economic cycles further heighten risks.

(You can read the full research report on Cato here >>>)

Other noteworthy reports we are featuring today include Canadian National Railway Co. (CNI), Arthur J. Gallagher & Co. (AJG) and Coinbase Global, Inc. (COIN).

Mark Vickery

Senior Editor

Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>

Today's Must Read

Oracle (ORCL) Gains from Cloud Suite Adoption & Partnerships

Supply Stabilization, Higher AI Spending Aids Micron (MU)

Medtronic (MDT) Banks on Neuromodulation, New Growth Areas

Featured Reports

Dividends & Buyback Aid Canadian National (CNI), Expenses Ail

The Zacks analyst likes the shareholder-friendly measures adopted by Canadian National. However, rising operating expenses are concerning as they are likely to keep the bottom line under pressure.

Improving Fees and Commissions Aid Arthur J. Gallagher (AJG)

Per the Zacks analyst, Arthur J. Gallagher is poised to grow on improving fees and commissions that in turn is driving organic revenues growth. However, rising expenses weighing on margin concerns.

Coinbase (COIN) Banks on Improving Top Line, Expenses Hurt

Per the Zacks analyst, higher transaction revenues, subscription and services revenues, growth in crypto assets should drive Coinbase revenues. However, escalating expenses hurt its margins.

Investments Aid Sempra Energy (SRE), Poor Financials Woe

Per the Zacks analyst, systematic investments in infrastructure are expected to boost Sempra's rate base growth. Yet, the company's poor financial position might remain a concern for its investors

ANSYS' (ANSS) Performance Driven by Robust Product Portfolio

Per the Zacks Analyst, higher demand for simulation solutions across verticals like aerospace and high tech is driving ANSYS's performance. Increasing expenses and stiff competition are concerning.

Solid Transportation Segment Aids Trimble's (TRMB) Prospects

Per the Zacks analyst, Trimble is benefiting from strong momentum in the transportation segment, driven by organic growth in enterprise and strong demand for map solutions.

Service Center Unit Aids Applied Industrial (AIT), Costs Ail

Per the Zacks analyst, Applied Industrial's Service Center Based Distribution segment is driven by sales initiatives and focus on national customer accounts. However, high costs remain concerning.

New Upgrades

Solid Bookings & Fleet Expansion to Aid Royal Caribbean (RCL)

Per the Zacks analyst, Royal Caribbean is likely to benefit from robust booking trends, fleet expansion and digital initiatives. Also, strength in consumer onboard spending bodes well.

Cheniere (LNG) to Gain from Sustained Gas Export Strength

The Zacks analyst believes that being one of the few liquefied natural gas exporters of the U.S., Cheniere Energy is set to capitalize on the sustained strength in shipments to Europe and Asia.

Zillow Group (ZG) Rides on Healthy Demand, Portfolio Strength

Per the Zacks analyst, solid traction in the Premier Agent business and strong multi-family listings will likely drive Zillow Group's top line. Focus on AI integration is a tailwind.

New Downgrades

CSX's Prospects Hurt by High Debt Load & Soft Coal Market

The Zacks analyst is concerned about the weak coal market, which has resulted in below-par coal revenues. CSX's high debt levels are also worrisome.

Hershey (HSY) Remains Troubled by Increasing Commodity Costs

Per the Zacks analyst, Hershey is seeing higher commodity costs. In Q3, adjusted gross margin contracted 460 basis points due to higher commodity costs and fixed cost deleverage among other reasons.

High Costs and Strict Regulation Hurt Franklin (BEN) Growth.

Per the Zacks analyst, Franklin's rising cost will hurt the bottom-line growth. Numerous regulations by U.S. and non-U.S. regulators add further complexity to ongoing operations.

Zacks Investment Research

PRA Group, Inc.’s PRAA shares gained 17.8% since it reported third-quarter 2024 results on Nov. 6, 2024. The strong quarterly results benefited from strong cash collections and purchases in the third quarter. Moreover, the company showed optimism in achieving its 2024 targets and expects accelerated progress in 2025, driving investor confidence upward. However, rising expenses partially offset the positives.

PRAA reported third-quarter 2024 earnings per share of 49 cents, which beat the Zacks Consensus Estimate by 44.1%. A loss of 31 cents per share was incurred in the prior-year quarter.

Total revenues climbed 30.1% year over year to $281.5 million. The top line surpassed the consensus mark by 6.4%.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

PRA Group, Inc. Price, Consensus and EPS Surprise

PRA Group, Inc. price-consensus-eps-surprise-chart | PRA Group, Inc. Quote

Quarterly Operational Update

PRA Group’s cash collections were $477.1 million, which increased 13.7% year over year but missed the Zacks Consensus Estimate of $483 million. The metric benefited on the back of improved cash collections across the United States and Europe.

Portfolio income rose 13.8% year over year to $216.1 million but missed the consensus mark of $218 million. Other revenues of $4.7 million increased 9.9% year over year and beat the Zacks Consensus Estimate of $2.3 million.

Total operating expenses escalated 10.4% year over year to $191.5 million due to increased compensation and employee services, legal collection costs and fees, agency fees and other operating expenses.

PRAA reported a net income of $27.2 million against a loss of $12.2 million in the prior-year quarter.

The company purchased nonperforming loan portfolios of $350 million, up 12% year over year. The cash efficiency ratio was 60.1%. The estimated remaining collections (ERC) amounted to $7.3 billion at the third-quarter end.

Financial Update (as of Sept. 30, 2024)

PRA Group exited the third quarter with cash and cash equivalents of $141.1 million, which grew 25.4% from the 2023-end level. It had $1 billion remaining under its credit facilities at the third-quarter end.

Total assets of $4.9 billion increased 9.1% from the figure at 2023-end.

Borrowings were $3.3 billion, up 13.1% from the figure as of Dec. 31, 2023.

Total equity of $1.3 billion increased 3.4% from the 2023-end level.

Revised Outlook

For 2024, the company still expects solid portfolio investment levels on the back of higher U.S. portfolio supply and favorable returns. PRAA continues to forecast cash collections to witness double-digit growth. Management expects legal collection costs in the fourth quarter to be in the low $30 million. Modest expense growth is expected for 2024.

The effective tax rate is expected to be in the high to mid-teens range this year. The cash efficiency ratio is projected at around 60% for 2024. It now expects a return on average tangible equity of more than 8%. PRA Group is likely to collect an ERC balance of $1.7 billion within the next 12 months.

For 2025, the company expects portfolio purchases to surpass $1 billion. Cash collections are expected to grow in the range of 8%-10% in 2025. The cash efficiency ratio is projected to be around 60% for 2025. PRAA anticipates a double digit return on average tangible equity for 2025.

Zacks Rank

PRA Group currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Finance Sector Players

Marsh & McLennan Companies, Inc. MMC posted third-quarter 2024 adjusted earnings per share of $1.63, which beat the Zacks Consensus Estimate by 1.2%. The bottom line advanced 3.8% year over year. Consolidated revenues rose 6% year over year to $5.7 billion. The figure also improved 5% on an underlying basis. The top line, however, fell 0.2% short of the consensus mark.

Marsh & McLennan’s adjusted operating income was $1.19 billion in the third quarter, which grew 12% year over year but missed our estimate of $1.21 billion.

Arthur J. Gallagher & Co. AJG reported third-quarter 2024 adjusted net earnings of $2.26 per share, meeting the Zacks Consensus Estimate. The bottom line increased 13% on a year-over-year basis. Total adjusted revenues of $2.7 billion missed the Zacks Consensus Estimate by 0.1%. However, the top line improved 11.1% year over year.

EBITDAC grew 14.3% from the prior-year quarter to $808.8 million.

Aon plc AON reported third-quarter 2024 adjusted earnings of $2.72 per share, which beat the Zacks Consensus Estimate by 11%. The bottom line advanced 17% year over year. Total revenues of $3.72 billion improved 26% year over year. The top line beat the consensus mark by 0.5%. It consisted of organic revenue growth of 7% and a 19% revenue rise from acquisitions.

Revenues are expected to register mid-single-digit or higher organic growth for 2024 and beyond. The company anticipates the adjusted operating margin to expand in 2024.

Zacks Investment Research

For new and old investors, taking full advantage of the stock market and investing with confidence are common goals. Zacks Premium provides lots of different ways to do both.

Featuring daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, the research service can help you become a smarter, more self-assured investor.

Zacks Premium also includes the Zacks Style Scores.

What are the Zacks Style Scores?

The Zacks Style Scores, developed alongside the Zacks Rank, are complementary indicators that rate stocks based on three widely-followed investing methodologies; they also help investors pick stocks with the best chances of beating the market over the next 30 days.

Each stock is given an alphabetic rating of A, B, C, D or F based on their value, growth, and momentum qualities. With this system, an A is better than a B, a B is better than a C, and so on, meaning the better the score, the better chance the stock will outperform.

The Style Scores are broken down into four categories:

Value Score

Value investors love finding good stocks at good prices, especially before the broader market catches on to a stock's true value. Utilizing ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and many other multiples, the Value Style Score identifies the most attractive and most discounted stocks.

Growth Score

Growth investors are more concerned with a stock's future prospects, and the overall financial health and strength of a company. Thus, the Growth Style Score analyzes characteristics like projected and historic earnings, sales, and cash flow to find stocks that will see sustainable growth over time.

Momentum Score

Momentum trading is all about taking advantage of upward or downward trends in a stock's price or earnings outlook, and these investors live by the saying "the trend is your friend." The Momentum Style Score can pinpoint good times to build a position in a stock, using factors like one-week price change and the monthly percentage change in earnings estimates.

VGM Score

If you want a combination of all three Style Scores, then the VGM Score will be your friend. It rates each stock on their combined weighted styles, helping you find the companies with the most attractive value, best growth forecast, and most promising momentum. It's also one of the best indicators to use with the Zacks Rank.

How Style Scores Work with the Zacks Rank

The Zacks Rank is a proprietary stock-rating model that harnesses the power of earnings estimate revisions, or changes to a company's earnings expectations, to help investors build a successful portfolio.

#1 (Strong Buy) stocks have produced an unmatched +25.41% average annual return since 1988, which is more than double the S&P 500's performance over the same time frame. However, the Zacks Rank examines a ton of stocks, and there can be more than 200 companies with a Strong Buy rank, and another 600 with a #2 (Buy) rank, on any given day.

This totals more than 800 top-rated stocks, and it can be overwhelming to try and pick the best stocks for you and your portfolio.

That's where the Style Scores come in.

To maximize your returns, you want to buy stocks with the highest probability of success. This means picking stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B. If you find yourself looking at stocks with a #3 (Hold) rank, make sure they have Scores of A or B as well to ensure as much upside potential as possible.

As mentioned above, the Scores are designed to work with the Zacks Rank, so any change to a company's earnings outlook should be a deciding factor when picking which stocks to buy.

For instance, a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one that boasts Scores of A and B, still has a downward-trending earnings forecast, and a much greater likelihood its share price will decline as well.

Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.

Stock to Watch: PRA Group (PRAA)

Headquartered in Norfolk, VA, and incorporated in Delaware, PRA Group, Inc. is a global financial and business services company in the Americas, Australia and Europe.

PRAA is a #3 (Hold) on the Zacks Rank, with a VGM Score of B.

Momentum investors should take note of this Finance stock. PRAA has a Momentum Style Score of A, and shares are up 16.9% over the past four weeks.

For fiscal 2024, two analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $0.58 to $1.71 per share. PRAA boasts an average earnings surprise of 305.3%.

With a solid Zacks Rank and top-tier Momentum and VGM Style Scores, PRAA should be on investors' short list.

Zacks Investment Research

Encore Capital Group (ECPG) came out with quarterly earnings of $1.26 per share, missing the Zacks Consensus Estimate of $1.47 per share. This compares to earnings of $0.79 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of -14.29%. A quarter ago, it was expected that this provider of debt-management and recovery services would post earnings of $1.26 per share when it actually produced earnings of $1.34, delivering a surprise of 6.35%.

Over the last four quarters, the company has surpassed consensus EPS estimates three times.

Encore Capital Group, which belongs to the Zacks Financial - Consumer Loans industry, posted revenues of $367.07 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 1.93%. This compares to year-ago revenues of $309.62 million. The company has topped consensus revenue estimates two times over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

Encore Capital Group shares have lost about 6.4% since the beginning of the year versus the S&P 500's gain of 21.2%.

What's Next for Encore Capital Group?

While Encore Capital Group has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Encore Capital Group: mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $1.81 on $371.46 million in revenues for the coming quarter and $5.56 on $1.42 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Financial - Consumer Loans is currently in the bottom 34% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

One other stock from the same industry, Open Lending (LPRO), is yet to report results for the quarter ended September 2024. The results are expected to be released on November 7.

This company is expected to post quarterly earnings of $0.05 per share in its upcoming report, which represents a year-over-year change of +150%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days.

Open Lending's revenues are expected to be $29.46 million, up 13.3% from the year-ago quarter.

Zacks Investment Research