Credit Acceptance Exhibits Top-Line Strength: Should You Buy?
Zacks Investment Research | Apr 05, 2019 08:11AM ET
We issued an updated research report on Credit Acceptance Corporation’s (NASDAQ:CACC) on Apr 4. The company’s top-line growth is expected to be supported by increasing consumer loans and higher interest rates. Moreover, its steady capital-deployment activities reflect strong liquidity.
Rising demand for consumer loans and favorable interest rates have supported Credit Acceptance’s revenues to a great extent. Additionally, the company’s revenues are expected to increase further, given higher demand for auto loans and rise in finance charges. Also, a considerable rise in dealer enrollments and active dealers will support the company’s top line.
We also remain encouraged by the company’s steady capital-deployment measures. It returns capital through share repurchases rather than paying dividends. Although Credit Acceptance has a considerably higher debt burden compared to peers, the company’s high cash-flow generating business model and lower requirements of capital expenditures will help sustain its share buybacks.
However, continuously rising expenses, mainly due to higher salaries and wages, along with sales and marketing expenses remain a concern for the company. Furthermore, deterioration in the company’s overall credit quality might hamper its financials in the future.
Nevertheless, the Zacks Consensus Estimate for 2019 earnings has been revised slightly upward, over the past 30 days. This reflects analysts’ bullish sentiments regarding the company’s earnings growth prospects. Thus, the stock currently carries a Zacks Rank #2 (Buy).
Moreover, over the past six months, shares of Credit Acceptance have gained 7.9% against its Zacks Investment Research
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