Encore Capital Misses Expectations

Investors in Encore Capital Group, Inc. (NASDAQ:ECPG) released its annual results. Revenues were in line with forecasts, at US$1.5b, although statutory earnings per share came in 11% below what the analysts expected, at US$6.68 per share.

It will come as no surprise to learn that the consensus price target is largely unchanged at $51.25. It could also be constructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Encore Capital Group, with the most bullish analyst valuing it at $55.00 and the most bearish at US$41.00 per share. With such a narrow range of valuations, the analysts apparently share similar views on what they think the business is worth.

One of the ways to understand these forecasts is to see how they compare to past performance and industry growth estimates. It’s pretty clear that there is an expectation that Encore’s revenue growth will slow down substantially, with revenues next year expected to grow 1.5%, compared to a historical growth rate of 7.2% over the past five years. The other companies in this industry with analyst coverage are forecast to grow their revenue at 15% per year. So it’s pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Encore.

The Bottom Line

The most important thing to take away is that there’s been no major change in sentiment, with the analysts reconfirming that the business is performing in line with their previous earnings per share estimates. The analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – although our data does suggest that Encore’s revenues are expected to perform worse than the industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year’s earnings.