NCO Group Stock Downgraded on Capital One Worries

NEW YORK ? Analysts at JMP Securities downgrade NCO Group Inc (Nasdaq: NCOG) from “strong buy” to “market outperform.” The target price has been reduced from $34 to $30.

Shares of NCO Group, a leading provider of accounts receivable outsourcing and call center services, are currently trading at $23.76.

According to JMP Securities? research note published this morning, NCO Group is expected to benefit from the improving collections environment. However, one of the major clients of the company, Capital One Financial, has reportedly reduced the fees paid for contingency collections. Capital One is reported to have lowered the fee on primary paper from 33% to 29% of collections, representing a 12% reduction, the analysts mention. Capital One Financial represented over 10% of NCO Group?s 2003 revenues, the analysts add.

The prospects of the collections industry have also been dampened by the delay in the corporate tax bill that authorizes the IRS to employ third party collection agencies, according to JMP Securities. NCO Group?s near-term profits are expected to be determined by the improvement in the liquidation rates, the recognition of deferred earnings and continued de-leveraging, the analysts mention. However, the pressure on the volumes of new placements to contingency agencies could restrict the company?s earnings prospects, the analysts add.

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