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Active Dealer Rise Aids Credit Acceptance (CACC), Costs Ail
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Credit Acceptance Corporation (CACC - Free Report) is expected to keep witnessing top-line growth, supported by the rise in demand for auto loans, along with an increase in dealer enrollments and active dealers. The company’s share buyback policy also seems impressive.
However, increasing operating expenses will likely hurt the company’s bottom-line growth. Worsening credit quality, supply-chain disruptions in the automobile industry and high debt levels are other concerns.
The Zacks Consensus Estimate for CACC’s 2022 earnings has been revised marginally lower over the past 30 days. Hence, CACC currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of Credit Acceptance have lost 13.3% compared with a 9.1% decline of the industry it belongs to.
Image Source: Zacks Investment Research
Looking at its fundamentals, Credit Acceptance’s top line witnessed a five-year (2017-2021) compound annual growth rate (CAGR) of 13.7%, primarily driven by the rise in finance charges. Finance charge is CACC’s main revenue component (accounting for 92.5% of total revenues in the first three quarters of 2022). Finance charges are likely to continue improving as the demand for auto loans steadily rises. A decent rise in dealer enrolments and active dealers is also expected to support the company’s top-line growth.
As of Sep 30, 2022, Credit Acceptance had total debt of $4.6 billion, significantly higher than cash and cash equivalents (including restricted cash and restricted securities) of $395.4 million. Nevertheless, the company has a $410-million revolving secured line of credit facility and five Warehouse facilities (total borrowing capacity of $1.1 billion). Thus, the company’s current liquidity position is sufficient to meet near-term debt obligations, even if the economic situation worsens.
CACC believes in returning capital to shareholders through stock repurchases instead of paying dividends. In September 2021, it authorized additional 2 million shares to be repurchased. As of Sep 30, 2022, the company had 0.37 million shares left to be repurchased. Despite having a substantial debt burden, its high cash-flow-generating business model and low capital expenditure are likely to help it sustain share buybacks.
However, operating expenses witnessed a CAGR of 10.9% over the last five years (ended 2021). The increase has been mainly due to a rise in salaries and wages, and sales and marketing expenses. The uptrend in expenses continued in the first nine months of 2022. Operating expenses are expected to remain elevated in the near term, owing to the company’s continued efforts to hire additional team members and sales force.
Credit Acceptance’s asset quality has been deteriorating over the past few years. While provision for credit losses declined in 2018 and 2021, the same witnessed a substantial rise in 2020 on account of the coronavirus-related concerns. The upward trend persisted in the first three quarters of 2022. Given the steady rise in loan balances and deteriorating macroeconomic outlook, provisions are expected to remain elevated in the near term.
The Zacks Consensus Estimate for Associated Banc-Corp’s 2022 earnings has been revised marginally upward over the past 60 days. ASB’s shares have risen 7.2% in the past three months.
Navient Corporation recorded a marginal upward earnings estimate revision for 2022 over the past 60 days. Over the past three months, the NAVI stock has gained 6.9%.
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Active Dealer Rise Aids Credit Acceptance (CACC), Costs Ail
Credit Acceptance Corporation (CACC - Free Report) is expected to keep witnessing top-line growth, supported by the rise in demand for auto loans, along with an increase in dealer enrollments and active dealers. The company’s share buyback policy also seems impressive.
However, increasing operating expenses will likely hurt the company’s bottom-line growth. Worsening credit quality, supply-chain disruptions in the automobile industry and high debt levels are other concerns.
The Zacks Consensus Estimate for CACC’s 2022 earnings has been revised marginally lower over the past 30 days. Hence, CACC currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of Credit Acceptance have lost 13.3% compared with a 9.1% decline of the industry it belongs to.
Image Source: Zacks Investment Research
Looking at its fundamentals, Credit Acceptance’s top line witnessed a five-year (2017-2021) compound annual growth rate (CAGR) of 13.7%, primarily driven by the rise in finance charges. Finance charge is CACC’s main revenue component (accounting for 92.5% of total revenues in the first three quarters of 2022). Finance charges are likely to continue improving as the demand for auto loans steadily rises. A decent rise in dealer enrolments and active dealers is also expected to support the company’s top-line growth.
As of Sep 30, 2022, Credit Acceptance had total debt of $4.6 billion, significantly higher than cash and cash equivalents (including restricted cash and restricted securities) of $395.4 million. Nevertheless, the company has a $410-million revolving secured line of credit facility and five Warehouse facilities (total borrowing capacity of $1.1 billion). Thus, the company’s current liquidity position is sufficient to meet near-term debt obligations, even if the economic situation worsens.
CACC believes in returning capital to shareholders through stock repurchases instead of paying dividends. In September 2021, it authorized additional 2 million shares to be repurchased. As of Sep 30, 2022, the company had 0.37 million shares left to be repurchased. Despite having a substantial debt burden, its high cash-flow-generating business model and low capital expenditure are likely to help it sustain share buybacks.
However, operating expenses witnessed a CAGR of 10.9% over the last five years (ended 2021). The increase has been mainly due to a rise in salaries and wages, and sales and marketing expenses. The uptrend in expenses continued in the first nine months of 2022. Operating expenses are expected to remain elevated in the near term, owing to the company’s continued efforts to hire additional team members and sales force.
Credit Acceptance’s asset quality has been deteriorating over the past few years. While provision for credit losses declined in 2018 and 2021, the same witnessed a substantial rise in 2020 on account of the coronavirus-related concerns. The upward trend persisted in the first three quarters of 2022. Given the steady rise in loan balances and deteriorating macroeconomic outlook, provisions are expected to remain elevated in the near term.
Stocks to Consider
A couple of better-ranked stocks from the finance space are Associated Banc-Corp (ASB - Free Report) and Navient Corporation (NAVI - Free Report) . ASB and NAVI carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Associated Banc-Corp’s 2022 earnings has been revised marginally upward over the past 60 days. ASB’s shares have risen 7.2% in the past three months.
Navient Corporation recorded a marginal upward earnings estimate revision for 2022 over the past 60 days. Over the past three months, the NAVI stock has gained 6.9%.