Low Interest Rates and a Rebounding Auto Industry Bode Well for CACC
By:NewsyStocks   Wednesday, January 25, 2022 10:55 AM



By virtually all accounts 2012 looks to be a strong year for the automotive industry. Ford, GM, Toyota and Volkswagen have all announced they expect the growth seen in Q4 2011 sales to continue throughout this year, and even beyond. This was just a matter of time of course as there were simply too many positive factors working in their favor. The lowest interest rates in years, American's cars are the oldest they've been since the late ‘90's and consumer confidence is (slowly) improving.

Now let's add a little wrinkle to this scenario. After the past several years even the most responsible consumers have found themselves in difficult financial situations. Poor credit, while slowly improving, continues to plague a number of otherwise fiscally responsible people. Couple that with a burgeoning automotive industry and those companies that provide financing to those with less than stellar credit are positioned to do well as we move further into 2012.

One of the leaders in the automotive financing industry targeting these same consumers is $2.1 billion, Southfield, Michigan based Credit Acceptance Corporation (CACC). Though Q4 2011 earnings won't be released until mid February, if CACC can beat Q3 figures it will mean six straight quarters of revenue and net income growth for the company, pretty heady stuff considering the economy these past couple of years.

At 11.85 Credit Acceptance Corp's P/E is a bit higher than their direct competitors, but that's a bit deceiving. Their direct competition isn't GE Finance per se, but rather other lenders targeting those auto buyers without perfect credit. As for those such as Nicholas Financial (NICK) and others, being micro-cap stocks it's difficult to compare them on an equal basis. But if GE Finance's recent results are any indication, it's should  be a good year for all regardless of size.

Certainly nothing wrong with looking at leading auto manufacturers for your portfolio, there's every indication 2012 will be a banner year. But CACC stands to ride right along with the big boys and it's currently trading about 14% off its 52-week high. With several favorable factors working in the company's favor, the 52-week high of $93.10 may not be the end for investors in Credit Acceptance Corporation.

Some quick math may put this opportunity into perspective. A company with consistent revenue and net income growth for several quarters trading at 15 times earnings doesn't seem at all unreasonable. Should that be the case CACC, based on trailing earnings of $6.89 a share, is a $103 stock. The stock is currently trading in the $81 to $82 range providing investors with strong upside potential. If you agree with the pundits that the auto industry is back, CACC is proof there's more than one way to enjoy the resurgence.


 

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