Credit Acceptance posts Q3 net loss as provision for credit losses increased 170%

Overview

• U.S. auto finance firm's Q3 revenue slightly missed analyst expectations, adjusted EPS beat consensus

• Company posted GAAP net loss due to higher provision for credit losses after loan forecast adjustment

• Company repurchased 2.6% of shares outstanding for $161.6 mln

Outlook

• Company adjusted its loan forecasting methodology, lowering forecasted net cash flows by 2.5% in Q3

• Credit Acceptance expects lower collection rates for loans assigned from 2022 to 2026

• Company says recent loan performance underperformed forecasts, especially in lower scorecard bands

Result Drivers

• CREDIT LOSS PROVISION - Company said net loss was driven by a 170% increase in provision for credit losses, mainly due to a downward adjustment to loan forecast methodology and weaker Consumer Loan performance

• LOAN VOLUME GROWTH - Consumer Loan assignment unit volume rose 37.7% and dollar volume rose 51.0%, supported by increased dealer participation and higher average advances

• FORECAST METHODOLOGY CHANGE - Co adjusted methodology for forecasting net cash flows, reducing forecasted collection rates for loans assigned in 2022-2026, after observing consistent underperformance

Company press release:

Key Details

*Applies to a deviation of less than 1%; not applicable for per-share numbers.

Analyst Coverage

• The current average analyst rating on the shares is "hold" and the breakdown of recommendations is no "strong buy" or "buy", 3 "hold" and no "sell" or "strong sell"

• The average consensus recommendation for the consumer lending peer group is "buy."

• Wall Street's median 12-month price target for Credit Acceptance Corp is $600.00, about 10.1% above its October 28 closing price of $544.90

• The stock recently traded at 10 times the next 12-month earnings vs. a P/E of 12 three months ago

Reuters Recommended Reads

• Oct 27 - Private credit roundup: Weakest US loans flash warning signs for private credit

• Oct 28 - OppFi Q3 profit beats estimates on product launch, pricing initiatives

• Oct 29 - Medallion Financial Q3 profit drops on higher credit loss provisions

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(This story was created using Reuters automation and AI based on LSEG and company data. It was checked and edited by a Reuters journalist prior to publication.)