PRA Group (PRAA) has been downgraded by Janney to a sell rating from neutral, as the firm also cut its earnings per share and price target for the financial and business services company.
PRAA was down 5% in pre-market trading.
In a note to clients, Janney said it sees several “EPS headwinds” for PRA over the next few years including low initial purchase price multiples, higher interest expense tied to a recent debt refinancing, and higher operating expenses from its intention to build additional domestic call centers.
“Simply put, PRAA continues to buy receivables at the lowest initial purchase price multiples (estimated collections/purchase price) that we have seen in a decade,” said Janney, adding that “we do not think a liquidation analysis supports PRAA’s current valuation.”
Janney values the company at 19x its new 2018 EPS estimate, which has been cut to $1.14 from $2.10, and lowered its fair value estimate to $22 from $27.