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Loan Originations Aid Hercules Capital (HTGC) Amid High Costs
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Hercules Capital, Inc.’s (HTGC - Free Report) top line is expected to keep improving on expectations of growing demand for customized financing. Moreover, backed by solid balance sheet and liquidity positions, the company’s capital deployment activities seem sustainable.
However, elevated expenses might hamper HTGC’s bottom line to an extent in the near term. Moreover, the lack of global diversification makes us apprehensive about the company’s growth prospects.
Analysts have also maintained a neutral stance toward the stock. Over the past 30 days, the Zacks Consensus Estimate for HTGC’s 2021 and 2022 earnings has been unchanged. Thus, the company currently carries a Zacks Rank #3 (Hold).
Over the past year, shares of Hercules Capital have gained 16.7% compared with the industry’s growth of 24.4%.
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Looking at fundamentals, HTGC had $818.4 million in liquidity, including $235.9 million in unrestricted cash and cash equivalents, and $582.5 million in credit facilities, as of Sep 30, 2021. Moreover, the company has the availability to draw on credit facilities when required. Effective Nov 9, 2021, HTGC entered a $100-million multi-currency credit facility, which will mature in November 2026.
Despite the current tough economic scenario, Hercules Capital is expected to continue witnessing growing demand for customized financing from private equity firms and venture capitalists.
Also, HTGC’s concentrated focus on its credit performance remains impressive. In the first nine months of 2021, the company closed $1.69 billion in new debt and equity commitments. Thus, driven by the rise in demand for customized financing, total new commitments are expected to keep increasing.
Given a solid liquidity position, Hercules Capital is expected to keep enhancing shareholder value through efficient capital deployment activities. In order to maintain its RIC status, the company distributes approximately 90% of its taxable income. In October 2021, it announced a 3.1% hike in quarterly distribution, following a 3.2% hike in May 2019. Management plans to revisit its dividend policy at the end of every quarter and determine if any changes are required.
However, over the last five years (2016-2020), total expenses witnessed a compound annual growth rate of 12%. The rise was mainly due to increased compensation costs and interest expenses. The uptrend in expenses continued in the first nine months of 2021. While Hercules Capital’s efforts to expand originations are expected to lead to enhanced growth prospects, it might result in higher costs in the near term, which might continue to put pressure on the bottom line.
To comply with regulatory requirements, Hercules Capital invests primarily in the United States-based companies and to a lesser extent in foreign names. While the U.S. economy has been improving, persistent regulatory constraints amid the current tough economic scenario may lead to increased costs of funding, and thereby limit the company’s access to the capital market.
The consensus estimate for Gladstone Capital’s current fiscal year earnings has been unchanged over the past 60 days. Over the past year, GLAD’s share price has rallied 24.7%.
Golub Capital’s current fiscal year earnings estimates have been revised 2.5% upward over the past 60 days. GBDC’s shares have gained 8.6% over the past year.
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Loan Originations Aid Hercules Capital (HTGC) Amid High Costs
Hercules Capital, Inc.’s (HTGC - Free Report) top line is expected to keep improving on expectations of growing demand for customized financing. Moreover, backed by solid balance sheet and liquidity positions, the company’s capital deployment activities seem sustainable.
However, elevated expenses might hamper HTGC’s bottom line to an extent in the near term. Moreover, the lack of global diversification makes us apprehensive about the company’s growth prospects.
Analysts have also maintained a neutral stance toward the stock. Over the past 30 days, the Zacks Consensus Estimate for HTGC’s 2021 and 2022 earnings has been unchanged. Thus, the company currently carries a Zacks Rank #3 (Hold).
Over the past year, shares of Hercules Capital have gained 16.7% compared with the industry’s growth of 24.4%.
Looking at fundamentals, HTGC had $818.4 million in liquidity, including $235.9 million in unrestricted cash and cash equivalents, and $582.5 million in credit facilities, as of Sep 30, 2021. Moreover, the company has the availability to draw on credit facilities when required. Effective Nov 9, 2021, HTGC entered a $100-million multi-currency credit facility, which will mature in November 2026.
Despite the current tough economic scenario, Hercules Capital is expected to continue witnessing growing demand for customized financing from private equity firms and venture capitalists.
Also, HTGC’s concentrated focus on its credit performance remains impressive. In the first nine months of 2021, the company closed $1.69 billion in new debt and equity commitments. Thus, driven by the rise in demand for customized financing, total new commitments are expected to keep increasing.
Given a solid liquidity position, Hercules Capital is expected to keep enhancing shareholder value through efficient capital deployment activities. In order to maintain its RIC status, the company distributes approximately 90% of its taxable income. In October 2021, it announced a 3.1% hike in quarterly distribution, following a 3.2% hike in May 2019. Management plans to revisit its dividend policy at the end of every quarter and determine if any changes are required.
However, over the last five years (2016-2020), total expenses witnessed a compound annual growth rate of 12%. The rise was mainly due to increased compensation costs and interest expenses. The uptrend in expenses continued in the first nine months of 2021. While Hercules Capital’s efforts to expand originations are expected to lead to enhanced growth prospects, it might result in higher costs in the near term, which might continue to put pressure on the bottom line.
To comply with regulatory requirements, Hercules Capital invests primarily in the United States-based companies and to a lesser extent in foreign names. While the U.S. economy has been improving, persistent regulatory constraints amid the current tough economic scenario may lead to increased costs of funding, and thereby limit the company’s access to the capital market.
A couple of better-ranked stocks from the same space are Gladstone Capital Corporation (GLAD - Free Report) and Golub Capital BDC, Inc. (GBDC - Free Report) . Both GLAD and GBDC currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for Gladstone Capital’s current fiscal year earnings has been unchanged over the past 60 days. Over the past year, GLAD’s share price has rallied 24.7%.
Golub Capital’s current fiscal year earnings estimates have been revised 2.5% upward over the past 60 days. GBDC’s shares have gained 8.6% over the past year.