Portfolio: Zacks Deep Value

Credit Acceptance (CACC) is the dominant indirect subprime auto lender in the U.S., partnering with 10,000+ dealers to finance credit-challenged borrowers through its unique Portfolio and Purchase programs. The company advances funds to dealers and collects loan cash flows, accepting virtually 100% of applicants regardless of credit score. While subprime lending initially sounds risky, the company’s execution has been flawless for nearly 20 years, achieving remarkable 20% earnings per share CAGR over the past 20 years and now generates well above $1 billion free cash flow annually. The recent slowdown mainly attributable to declining used car prices is now in the rear-view mirror, in our view, making CACC shares highly attractive especially given its current forward P/E of just 11x and the ongoing share buyback program that have been ongoing at these very attractive valuations.