Zacks senior services sector analyst Neena Mishra feels the shares of business services company Portfolio Recovery Associates, Inc. (PRAA) should be rated a Hold. Here are some of the reasons why:
'PRAA is scheduled to report its 3Q07 financial results in the first week of November. PRAA currently trades at 14.3 times the consensus forward estimate (versus 15.5x at the time of our last report), a 47% premium to the peer group median (versus a 44% premium at that time). On a price-to-book basis, the shares trade at a 36% premium to the peer median, versus a 78% premium in late June.
'Relative pricing now looks expensive on P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. PRAA's PEG ratio on this basis is 1.30, a 37% premium to the 0.95 median for the peer group (versus a 12% premium previously). On a P/B basis (to which we apply very little weight), the 36% premium continues to look extremely full given an ROE only 14% above median.
'Our $56 price target (down $2.00) equates to 15.2 times our forward estimate six months out. With no dividend to supplement the return, this equates to an expected total return of 9%. Current relative valuation looks rather full at this point of time. We are, therefore, retaining our Hold rating and our six-month target price of $56 per share for PRAA.'
Read the full analyst report on PRAA.
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