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Hercules Tech Growth Capital (HTGC)

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We are upgrading our recommendation on Hercules Tech Growth Capital (HTGC) to Outperform on its better-than-expected second quarter results and renewed credit facilities. Second quarter distributable net operating income (DNOI) came in a nickel ahead of the Zacks Consensus Estimate. Increased investment income and improved net realized and unrealized gain on investments were the primary contributors.

A strong balance sheet and high level of liquidity were also among the positives. Despite the capital market disruption and sluggish economic recovery, we expect a steady pace of new investments by venture capitalists. This could lead to new investment opportunities.

Our six-month target price of $11.00 per share equates to about 11.7x our DNOI estimate for 2011. This price target implies an expected total return of 24.3% over that period, which is consistent with our long-term Outperform recommendation.




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