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Hercules Capital's Loan Originations Might Keep It Afloat

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On Sep 11, we issued an updated research report on Hercules Capital, Inc. (HTGC - Free Report) . The company has been benefiting from increasing loan originations and a solid liquidity position. Also, its capital deployment activities are encouraging. However, mounting expenses remain a major concern.

Shares of Hercules Capital have lost 14.3% year to date compared with the industry’s marginal decline.

The Zacks Consensus Estimate for current-year earnings have remained stable at $1.18 over the last 30 days. Thus, the stock carries a Zacks Rank #3 (Hold).

Growth Drivers

With the improving economic conditions, Hercules Capital is likely to witness growth in demand for financing from private equity firms and venture capitalists in the near term. The company originated nearly $397 million of debt and equity commitments to new and existing portfolio companies in the first half of 2017. Such robust loan originations position it well for growth.

Further, Hercules Capital’s steady capital deployment activities continue to enhance investors’ confidence. Back in 2009, its board of directors adopted a policy to distribute four quarterly dividends in an amount approximating 90-100% of the company’s taxable income. Also, management revisits its dividend policy at the end of every quarter in order to ensure if any special dividend needs to be paid or not. Moreover, the company’s favorable debt/equity ratio when compared to the broader industry makes these activities sustainable.

Higher Costs a Drag

However, increasing operating expenses is a matter of concern for the company. Costs have risen at a CAGR of 7.5% over the last four years (ended 2016). Continued increase in compensation costs is mainly attributable to this rise. Also, the company’s aim to expand originations is likely to keep expenses elevated in the near term.

Stocks to Consider

Some better-ranked stocks in the same space are State Street Corporation (STT - Free Report) , Citizens Financial Group, Inc. (CFG - Free Report) and FB Financial Corporation (FBK - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

State Street’s Zacks Consensus Estimate for current-year earnings was revised 3.6% upward for 2017, in the past 60 days. Also, its share price has increased 36.5% in the past 12 months.

Citizens Financial’s current-year earnings estimates were revised 3.5% upward, over the past 60 days. Further, the company’s shares have jumped 35.9% in a year.

FB Financial’s Zacks Consensus Estimate for current-year earnings was revised 2.7% upward, over the last 60 days. Moreover, in the past year, its shares have gained 67.7%.

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