Debt Purchasing Stocks Rise on Hopes of Lower Debt Prices

Several stocks central to the accounts receivables management industry have been active in recent days following a positive report from an analyst who upgraded his recommendations to investors for two debt purchasers.

The stocks of debt purchasers Portfolio Recovery Associates (Nasdaq: PRAA) and Asset Acceptance Capital Corp. (Nasdaq: AACC) have found investor favor after Daniel Fannon of Jeffries & Co. upgraded his rating on both stocks from “hold” to “buy” in a report widely released on Thursday.

Fannon tells insideARM.com that the supply of debt should rise in the second half of this year, and that could mean a pull back from the high prices seen in the last few years. “We’ll see a supply side pick up. There are signs prices will improve,” says Fannon.

Credit card charge-offs have been rising at such major issuers as Capital One, Citibank and Bank of America and that typically leads to more debt paper available. Additionally, Fannon writes that “industry participants” tell him they see less competition for debt paper and fewer of the “irrational purchases” that have sent prices higher.

The stock of Asset Acceptance is up more than 7 percent this week, trading at $18.03 midday today. Portfolio Recovery’s stock is up about 3 percent this week, rising from $58.75 on Monday to $60.76 in midday trading today.

Encore Capital Gorup (Nasdaq: ECPG), another publicly debt purchaser not mentioned in the report, also saw its stock rise more than 7 percent this week to around $12.50 in trading today.

Fannon has a price target of $68 for Portfolio Recovery, up from $50 and a target of $19 for Asset Acceptance, up from $18.