Janney Montgomery Scott LLC analyst John Rowan downgraded PRA Group to "sell" from "neutral" as he sees EPS headwinds over the next few years.
Rowan said the company could see the lowest initial purchase price multiples over the last decade, which could mean a lower yield on net finance receivables. He also acknowledged that the refinancing of $345 million of debt improved liquidity, but it led to higher interest expense.
Additionally, he noted that the company's sale of its fee businesses hurts the company's fee income and fee revenue. He expects the company's fee income to drop now that it has sold PRA Location Services, which generated a major part of its $6.3 million of fee income.
Further, Rowan said the company could see higher operating expenses in connection with its plan to open two more call centers in the U.S. to tackle a "capacity" problem.
He changed his EPS estimates to $1.73 from $2.07 for 2017 and to $1.14 from $2.10 for 2018.