Increase in acceptance of car loan enhancement credit (CACC) amid high costs

Credit Acceptance Corporation The CACC is expected to continue to see revenue growth, supported by rising demand for car loans, along with an increase in dealerships and active dealerships. The company’s share repurchase policy also looks impressive.

In addition, analysts are bullish on the stock. Zacks consensus estimate for CACC earnings for 2022 has been revised upwards by 1.1% over the last 60 days.

However, the persistent increase in operating costs is likely to continue to hurt the company’s financial growth. Deteriorating credit quality, supply chain disruptions in the automotive industry and high debt levels remain other short-term concerns. Therefore, the CACC currently carries a Zacks Rank # 3 (Hold).

Over the past year, Credit Acceptance shares have gained 53.4% ‚Äč‚Äčagainst a 1.2% drop in industry belongs to.

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Image source: Zacks Investment Research

Examining its fundamentals, Credit Acceptance’s top line showed a compound annual growth rate (CAGR) of five years (2017-2021) 13.7%. Growth is mainly attributed to the steady increase in financial expenditure, which is also the main component of revenue (accounting for 93.3% of total revenue in 2021). Financial costs are likely to continue to improve as demand for car loans grows steadily. A decent increase in dealerships and active dealerships is also expected to support the company’s top growth.

As of December 31, 2021, Credit Acceptance had a total debt of $ 4.6 billion, significantly higher than the remaining $ 496.3 million in cash and cash equivalents (including limited cash and limited securities). However, the company has a $ 340 million recyclable secured credit line and six Warehouse facilities, with a total loan capacity of $ 1.25 billion. Thus, its current liquidity position is sufficient to cover short-term loan liabilities, even if the financial situation deteriorates.

The CACC believes in the return of capital to shareholders through repurchases of shares instead of the payment of dividends. In September 2021, it approved an additional 2 million shares for repurchase. As of December 31, 2021, the company had 1.16 million shares repurchased. Despite having a significant debt burden, the business model that generates high cash flows and low capital expenditures is likely to help maintain stock acquisitions.

However, operating expenses showed a CAGR of 10.9% in the last five years (expired in 2021). The increase came mainly from the increase in salaries and wages and sales and marketing expenses. Operating costs are expected to remain high in the near future due to the company’s ongoing efforts to hire additional team members and sales potential.

The quality of Credit Acceptance assets has deteriorated in recent years. While the forecast for credit losses decreased in 2018 and 2021, the same marked a significant increase in 2020 due to coronavirus-related concerns. Given the steady growth of outstanding loans, forecasts are expected to remain high in the near future.

Shares to be examined

Some stocks with better ranking than the financial area are Associated Banc-Corp ASB and Commerce Bancshares, Inc. CBSH. Both ASB and CBSH currently have Zacks Rank # 2. You can see The full list of current Zacks # 1 Rank (Strong Buy) stocks is here.

The Zacks Consensus estimate for the Associated Banc-Corp’s current earnings has been revised upwards by 4.8% over the past 60 days.

ASB shares rose 3.2% last year.

Commerce Bancshares has recorded a 1.7% upward revision of its 2022 earnings for the last 60 days.

In the last twelve months, the CBSH share has lost 4.1%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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