Recently, four long-term NAIC investors shared their SSGs for Portfolio Recovery Associates (PRAA). I thought it would be fun to add my own analysis and compare our five sets of judgments.
PRAA’s primary business is the purchase and collection of consumer bad debts (defaulted accounts receivable). It is a small company, with $188.3M in 2006 Revenue according to Value Line, but does not make the current Forbes list of the 200 Best Small Companies although it more than satisies the criteria.
EPS growth has declined from from an explosive 43% per year six years ago to 21.5% last year. Analysts are estimating EPS for the next 5 years from a low of 14.3X% (Value Line and Zacks) to a high of 18.00% per year (First Call and S&PSDS/OPS) with Reuters at 15.86%. The EPS estimates for all five SSGs are within this range.
There is, however, a large Standard Deviation among the 7 Reuters analysts of 4.67% indicating substantial variation. My preference is usually to rely on the Reuters estimate less one SD which is 11.19% (15.86 – 4.67) in order to “wring out” what is commonly thought of as analyst over-optimism. However, I thought 11.2% was too low for PRAA and decided to use 16.00% in ASF-1 and 14.30% (the lowest of the 5 estimates) in ASF-2.
The empty cells for the other four SSGs below arose, I think, because they were following a faulty template that inadvertently omitted those factors. The SSG BUY criteria are a minimum Upside-Downside Ratio of 3.0 and a compound Total Return of at least 15.00% per year for the next 5 years.
Only KenK’s SSG satisfy’s the 15.00% requirement, but his Upside-Downside is missing, as it is for the other SSGs, so we can’t tell if PRAA was a SSG BUY for any of the four others.
PRAA was not a SSG BUY with my two SSGs. If its price fell to $52.80, by almost $4.50 per share, it would be a SSG BUY with ASF-1 which is based on 16.00% EPS growth. At 14.30% EPS growth, shown in ASF-2, it would be a SSG BUY if the price fell to $49.12 or by nearly $7.00 per share from its current price.
| Portfolio Recovery Associates (PRAA) |
KenK | BobM | LarryD | DanH | ASF-1 | ASF-2 |
| Sales Growth | ? | 16.00% | 16.00% | 16.00% | 16.00% | same |
| EPS Growth | 14.80% | 16.00% | 16.00% | 16.90% | 16.00% | 14.30% |
| High PE | 20.0 | 18.5 | 18.3 | 18.0 | 18.3 | same |
| High Price | ? | ? | ? | ? | $106.50 | $98.80 |
| Low PE | 13.1 | 13.1 | 12.6 | 13.0 | 12.6 | same |
| Low Price | $36.30 | $36.30 | $34.90 | $36.30 | $34.90 | same |
| Upside-Downside | ? | ? | ? | ? | 2.4 | 2.1 |
| Total Return | 18.9% | 13.8% | 13.9% | 14.3% | 13.8% | 12.1% |
| Current Price | ? | ? | ? | ? | $57.26 | same |
| Date | ? | ? | ? | ? | 5-2-07 | same |
- Armin
