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Analyst Blog

On Feb 5, 2014, we upgraded our long-term recommendation on Hercules Technology Growth Capital, Inc. to Outperform from Neutral. This was based on the company’s robust liquidity position that will expectedly facilitate further expansion of its portfolio.

Why the Upgrade?

Hercules will likely witness a growing demand for customized financing from private equity firms and venture capitalists, given the improving economic environment. The company is also well positioned to invest in new ventures without having to generate additional capital, thanks to its strong liquidity position.

Moreover, Hercules continues to experience a rise in new investment origination activities. Since technology-related companies are in general underserved by conventional lending sources, a specialty finance company like Hercules will likely receive impressive returns by providing venture capital to such companies.

Additionally, as it is a regulated investment company (RIC), Hercules always pays the majority of its earnings as dividends. Furthermore, the company might declare a special dividend to distribute any remaining earnings in the same year. In 2013, the company raised its quarterly dividend four times. Hence, Hercules is a sound asset for yield-seeking investors.

Estimates over the past 30 days have remained stable with the Zacks Consensus Estimate at $1.23 per share and $1.28 per share for 2013 and 2014, respectively.  Hence, Hercules now has a Zacks Rank #3 (Hold).

Other Stocks That Warrant a Look

Some better-ranked stocks in the same sector that are worth considering include Gladstone Investment Corp. , Horizon Technology Finance Corp. and OFS Capital Corp. . All these carry a Zacks Rank #2 (Buy).

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