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Robust Loan Originations Aid Hercules Capital (HTGC) Top Line

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Hercules Capital, Inc. (HTGC - Free Report) is expected to keep witnessing a rise in revenues 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.

Analysts have maintained a neutral stance toward the stock. Over the past 30 days, the Zacks Consensus Estimate for HTGC’s 2022 earnings has been unchanged. The company currently carries a Zacks Rank #2 (Buy).

Over the past year, shares of Hercules Capital have lost 11.5% compared with the industry’s decline of 1.9%.

 

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Looking at its fundamentals, HTGC had $779.7 million in liquidity, including $115.3 million in unrestricted cash and cash equivalents, and $664.4 million in credit facilities, as of Jun 30, 2022. The company also has the availability to draw on credit facilities when required.

It maintains long-term issuer ratings of BBB- and Baa3 from Fitch Ratings and Moody’s Investors Service, respectively, and a stable outlook, which renders it favorable access to the debt market.

Thus, supported by sufficient earnings strength and a solid balance sheet, the company is expected to be able to continue to meet debt obligations in the near term, even if the economic situation worsens.

Moreover, despite the tough macroeconomic scenario, Hercules Capital is expected to continue witnessing growing demand for customized financing from private equity firms and venture capitalists.

HTGC’s concentrated focus on its credit performance remains impressive. In 2021, the company closed $2.6 billion in new debt and equity commitments. In the first half of 2022, it reported $1.66 billion in gross new debt and equity commitments. Since the end of the second quarter and as of Jul 26, it closed new gross debt and equity commitments worth $250.2 million.

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 July 2022, it announced a 6.1% hike in the quarterly distribution, following a 3.1% hike in October 2021 and a 3.2% increase in May 2019. Management plans to revisit its dividend policy at the end of every quarter and determine if any changes are required.

However, Hercules Capital has been witnessing a persistent rise in expenses. While expenses declined in the first six months of 2022, the same witnessed a compound annual growth rate of 9.6% over the last six years (2016-2021). Its efforts to expand originations will likely result in elevated costs in the near term, which might put pressure on the bottom line.

Along with this, 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 other top-ranked stocks from the finance space are Cullen/Frost Bankers, Inc. (CFR - Free Report) and Bank OZK (OZK - Free Report) . At present, CFR sports a Zacks Rank #1 (Strong Buy) and OZK carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past year, shares of Cullen/Frost Bankers have gained 12.1%, while that of Bank OZK have lost 6.6%.

Over the past 30 days, the Zacks Consensus Estimate for Cullen/Frost Bankers’ current-year earnings has been revised 4% upward, while the same for Bank OZK has moved 5.5% north.


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