In an attempt to expand into the class action settlement recovery market, Portfolio Recovery Associates, Inc. (PRAA) announced on Monday the acquisition of 62% stake in the Claims Compensation Bureau, LLC (CCB), a company that specializes in recovering funds and processing payments due under class action claims settlement for clients. Although the deal has been completed, the terms of the transaction remains undisclosed.

Though PRAA has acquired a 62% controlling interest in substantially all of the assets of CCB initially, it also attained the right to buy the remaining 38% stake in future, depending on the market conditions and company interests. The management of PRAA also declared its intention to discuss the details of the CCB acquisition during its first quarter 2010 conference call.

PRAA is expected to benefit from the CCB, which has expanded even beyond securities class action settlements and payment processing into anti-trust class action settlements. This is expected to be accretive to the earnings of PRAA in the medium to long term. On the other hand, CCB is also expected to gain from the PRAA’s already well-positioned business portfolio.

Estimate Revision Trends

Over the last 30 days, 2 of 10 analysts covering the stock have lowered their estimates for the first quarter of 2010, while 4 upward revisions were witnessed. Currently, the Zacks Consensus Estimate for the first quarter is operating earnings of 86 cents per share, which would be up 29.7% from the year-ago quarter.

The fewer downward estimate revisions for the first quarter indicate a likelihood of upward pressure on the performance of the stock in the near term.

With respect to earnings surprises, the stock has been fluctuating over the last four quarters, with two positive surprises. The average over that time is -3.4%. This implies that PRAA has lagged behind the Zacks Consensus Estimate by 3.4% over that period.

PRAA’s fourth quarter earnings per share of 80 cents came in ahead of the Zacks Consensus Estimate of 72 cents and the year-ago quarter earnings of 69 cents. Overall, PRAA’s results reflected higher-than-expected top-line growth due to record cash collections and record cash receipts, partially offset by seasonal weakness in consumer collections and a $9.5 million allowance charge recorded in the reported quarter.

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