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Hercules Capital, Inc.’s (HTGC - Free Report) second-quarter 2016 net investment income of 32 cents per share surpassed the Zacks Consensus Estimate of 29 cents. Also, the figure reflected growth of 39.1% from the year-ago tally.
Better-than-expected results were driven by higher total investment income and lower operating expenses. Further, the company’s solid liquidity position and growth in investment portfolio remained impressive.
Distributional Net Operating Income for the quarter came in at $25.0 million or 34 cents per share, up from $19.0 million or 27 cents per share in the prior-year quarter.
Higher Total Investment Income & Lower Expenses Support Results
Total investment income in the reported quarter was $43.5 million, up 14.2% year over year. The rise was mainly driven by growth in loan portfolio. Moreover, the figure outpaced the Zacks Consensus Estimate of $42.1 million.
Interest expense and finance fees were $8.9 million, down 3.3% from the prior-year quarter.
Total operating expenses (excluding interest expense and loan fees) decreased 7.4% year over year to $11.3 million. The fall was largely led by lower total employee compensation costs.
Total Portfolio Value & New Commitments
The fair value of Hercules Capital’s total investment portfolio was $1.3 billion as of Jun 30, 2016. In the reported quarter, the company provided approximately $203.9 million in new debt and equity-financing commitments to new and existing portfolio companies.
Improving Balance Sheet Position
As of Jun 30, 2016, Hercules Capital’s net asset value was $9.66 per share compared with $9.81 as of Mar 31, 2016. The company had $254.7 million in liquidity, including $59.7 million in cash and cash equivalents and $195 million in credit facilities as of Jun 30, 2016.
As of Jun 30, 2016, the weighted average cost of debt, comprising interest and fees was 5.8%, versus 6.1% as of Jun 30, 2015.
Our Viewpoint
Hercules Capital’s loan origination activity continues to be on track and it strategically deploys its capital while maintaining a balanced and diversified approach across various industries and sectors. Additionally, the company’s significant investments in the flourishing technology sector should boost growth, while its strong capital and liquidity position will facilitate new investments.
However, rising expenses and stricter regulations continue to impact Hercules Capital’s financials and the threat of concentration risk for the company is also high. Moreover, there is a risk that management will stretch the investment size in order to grow more quickly and fully leverage its equity.
Currently, Hercules Capital carries a Zacks Rank #3 (Hold).
About Other Mortgage Investment Firms
Ares Capital Corporation's (ARCC - Free Report) reported a positive earnings surprise of 2.6% in second-quarter 2016 results. Core earnings of 39 cents per share surpassed the Zacks Consensus Estimate by a penny. Better-than-expected results were primarily driven by lower total operating expenses.
FS Investment Corporation and Garrison Capital Inc. are both scheduled to report their June-end quarter results on Aug 9.
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Hercules Capital's (HTGC) Q2 Earnings Beat, Costs Decline
Hercules Capital, Inc.’s (HTGC - Free Report) second-quarter 2016 net investment income of 32 cents per share surpassed the Zacks Consensus Estimate of 29 cents. Also, the figure reflected growth of 39.1% from the year-ago tally.
Better-than-expected results were driven by higher total investment income and lower operating expenses. Further, the company’s solid liquidity position and growth in investment portfolio remained impressive.
Distributional Net Operating Income for the quarter came in at $25.0 million or 34 cents per share, up from $19.0 million or 27 cents per share in the prior-year quarter.
Higher Total Investment Income & Lower Expenses Support Results
Total investment income in the reported quarter was $43.5 million, up 14.2% year over year. The rise was mainly driven by growth in loan portfolio. Moreover, the figure outpaced the Zacks Consensus Estimate of $42.1 million.
Interest expense and finance fees were $8.9 million, down 3.3% from the prior-year quarter.
Total operating expenses (excluding interest expense and loan fees) decreased 7.4% year over year to $11.3 million. The fall was largely led by lower total employee compensation costs.
Total Portfolio Value & New Commitments
The fair value of Hercules Capital’s total investment portfolio was $1.3 billion as of Jun 30, 2016. In the reported quarter, the company provided approximately $203.9 million in new debt and equity-financing commitments to new and existing portfolio companies.
Improving Balance Sheet Position
As of Jun 30, 2016, Hercules Capital’s net asset value was $9.66 per share compared with $9.81 as of Mar 31, 2016. The company had $254.7 million in liquidity, including $59.7 million in cash and cash equivalents and $195 million in credit facilities as of Jun 30, 2016.
As of Jun 30, 2016, the weighted average cost of debt, comprising interest and fees was 5.8%, versus 6.1% as of Jun 30, 2015.
Our Viewpoint
Hercules Capital’s loan origination activity continues to be on track and it strategically deploys its capital while maintaining a balanced and diversified approach across various industries and sectors. Additionally, the company’s significant investments in the flourishing technology sector should boost growth, while its strong capital and liquidity position will facilitate new investments.
However, rising expenses and stricter regulations continue to impact Hercules Capital’s financials and the threat of concentration risk for the company is also high. Moreover, there is a risk that management will stretch the investment size in order to grow more quickly and fully leverage its equity.
HERCULES CAP Price, Consensus and EPS Surprise
HERCULES CAP Price, Consensus and EPS Surprise | HERCULES CAP Quote
Currently, Hercules Capital carries a Zacks Rank #3 (Hold).
About Other Mortgage Investment Firms
Ares Capital Corporation's (ARCC - Free Report) reported a positive earnings surprise of 2.6% in second-quarter 2016 results. Core earnings of 39 cents per share surpassed the Zacks Consensus Estimate by a penny. Better-than-expected results were primarily driven by lower total operating expenses.
FS Investment Corporation and Garrison Capital Inc. are both scheduled to report their June-end quarter results on Aug 9.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>