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Hercules Capital (HTGC) Rides on Loan Originations, Costs Jump
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Growing demand for customized financing and a solid balance sheet position are expected to support Hercules Capital, Inc.’s (HTGC - Free Report) total investment income. Elevated expense levels and a lack of geographical diversification are concerning.
Looking at its fundamentals, as of Jun 30, 2023, HTGC had $670.7 million in liquidity, including $61.7 million in unrestricted cash and cash equivalents, and $609 million in credit facilities. Also, it has long-term issuer ratings of BBB- and Baa3 from Fitch Ratings and Moody’s Investors Service, respectively, along with a stable outlook, which renders it favorable access to the debt market. Also, the company has the availability to draw on credit facilities when required.
Hercules Capital is a small participant in a market with huge growth prospects. The company’s concentrated focus on its credit performance is impressive. In 2021, the company closed $2.6 billion in new debt and equity commitments while in 2022, it closed $3.13 billion. In the first half of 2023, the company delivered $1.07 billion in gross new debt and equity commitments.
Driven by the rise in demand for customized financing and a robust deal pipeline, total new commitments are expected to keep increasing. This, in turn, will support growth in total investment income. We expect the metric to jump 38.4% in 2024.
Yet, Hercules Capital’s total gross operating expenses witnessed a CAGR of 9.4% over the last four years (2018-2022) on the back of higher compensation costs and interest expenses. The upward trend continued in the first half of 2023. While the company’s efforts to expand originations will likely lead to enhanced growth prospects, it is expected to result in elevated costs. We project total gross operating expenses to reflect a CAGR of 15.4% by 2025.
To comply with regulatory requirements, HTGC invests primarily in U.S.-based companies. Persistent regulatory constraints amid the tough economic scenario may lead to increased funding costs and thereby limit the company’s access to the capital markets. Its foreign investment income will also be limited to support its overall financials.
Over the past year, shares of this Zacks Rank #3 (Hold) company have jumped 24.2%, outperforming the industry’s growth of 8.6% by a wide margiin.
The Zacks Consensus Estimate for Gladstone Capital’s current fiscal-year earnings has been revised 6.7% upward over the past 30 days. In the year-to-date period, GLAD’s shares have rallied 4.4%.
The Zacks Consensus Estimate for OFS Capital’s 2023 earnings has been revised 4.2% upward over the past month. Shares of OFS have rallied 4.6% so far this year.
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Hercules Capital (HTGC) Rides on Loan Originations, Costs Jump
Growing demand for customized financing and a solid balance sheet position are expected to support Hercules Capital, Inc.’s (HTGC - Free Report) total investment income. Elevated expense levels and a lack of geographical diversification are concerning.
Looking at its fundamentals, as of Jun 30, 2023, HTGC had $670.7 million in liquidity, including $61.7 million in unrestricted cash and cash equivalents, and $609 million in credit facilities. Also, it has long-term issuer ratings of BBB- and Baa3 from Fitch Ratings and Moody’s Investors Service, respectively, along with a stable outlook, which renders it favorable access to the debt market. Also, the company has the availability to draw on credit facilities when required.
Hercules Capital is a small participant in a market with huge growth prospects. The company’s concentrated focus on its credit performance is impressive. In 2021, the company closed $2.6 billion in new debt and equity commitments while in 2022, it closed $3.13 billion. In the first half of 2023, the company delivered $1.07 billion in gross new debt and equity commitments.
Driven by the rise in demand for customized financing and a robust deal pipeline, total new commitments are expected to keep increasing. This, in turn, will support growth in total investment income. We expect the metric to jump 38.4% in 2024.
Yet, Hercules Capital’s total gross operating expenses witnessed a CAGR of 9.4% over the last four years (2018-2022) on the back of higher compensation costs and interest expenses. The upward trend continued in the first half of 2023. While the company’s efforts to expand originations will likely lead to enhanced growth prospects, it is expected to result in elevated costs. We project total gross operating expenses to reflect a CAGR of 15.4% by 2025.
To comply with regulatory requirements, HTGC invests primarily in U.S.-based companies. Persistent regulatory constraints amid the tough economic scenario may lead to increased funding costs and thereby limit the company’s access to the capital markets. Its foreign investment income will also be limited to support its overall financials.
Over the past year, shares of this Zacks Rank #3 (Hold) company have jumped 24.2%, outperforming the industry’s growth of 8.6% by a wide margiin.
Image Source: Zacks Investment Research
Stocks Worth a Look
A couple of better-ranked stocks from the same industry are Gladstone Capital Corporation (GLAD - Free Report) and OFS Capital Corporation (OFS - Free Report) . Both sport a Zacks Rank of 1 (Strong Buy). at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Gladstone Capital’s current fiscal-year earnings has been revised 6.7% upward over the past 30 days. In the year-to-date period, GLAD’s shares have rallied 4.4%.
The Zacks Consensus Estimate for OFS Capital’s 2023 earnings has been revised 4.2% upward over the past month. Shares of OFS have rallied 4.6% so far this year.