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Why Is Hercules Tech (HTGC) Down 3.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Hercules Technology (HTGC - Free Report) . Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hercules Tech due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Hercules Capital Q3 Earnings In Line, Revenues Up Y/Y

Hercules Capital’s third-quarter 2018 net investment income of 31 cents per share was in line with the Zacks Consensus Estimate. The figure was 6.9% above the year-ago quarter figure.

Results reflected higher revenues, growth in investment portfolio and a rise in net asset value. However, increase in operating expenses was an undermining factor.

Distributional Net Operating Income came in at $32.6 million or 34 cents per share, up from $25.8 million or 31 cents per share in the prior-year quarter.

Total Investment Income Improves, Expenses Rise

Total investment income was $52.6 million, up 14.7% from the year-ago period. The increase was mainly driven by higher average debt investment balance and an overall rise in the core yield. However, the figure missed the Zacks Consensus Estimate of $54.3 million.

Total operating expenses rose 6.4% year over year to $23.3 million. The increase was largelydue to higher interest expenses, loan fees and total employee compensation costs.

Total Portfolio Value & New Commitments

The fair value of Hercules Capital’s total investment portfolio was $1.76 billion as of Sep 30, 2018.

In the reported quarter, the company provided $235.1 million in new debt and equity-financing commitments to eight new companies and 11 existing portfolio companies.

Strong Balance Sheet

As of Sep 30, 2018, Hercules Capital’s net asset value was $10.38 per share compared with $10.22 as of Jun 30, 2018. The rise was mainly driven by a change in unrealized depreciationand realized losses and unrealized gains, and accretive proceeds from ATM activity during the quarter.

The company had $137.3 million in liquidity, including $43.2 million in unrestricted cash and cash equivalents and $94.1 million in credit facilities as of Sep 30, 2018.

At the end of the third quarter, the weighted average cost of debt comprising interest and fees was 5.6%, stable year over year.


Management expects each 25 basis points or 50 basis point rise in Prime Rate to contribute nearly $3.1 million or 4 cents per share and $6.2 million or 7 cents per share, respectively of net investment income annually.

The company expects the fourth quarter of 2018 to record early payoff activities of around $35 million to $45 million.

In the fourth quarter, net investment income per share is expected to be nearly 31 cents.

The company expects total new commitments to exceed $1.1 billion in 2018.

With early payoffs likely to remain below $100 million, management expects investment portfolio to grow and end within the range of $1.7-$1.75 billion in 2018.

Management expects net loan portfolio to grow in the range of $75-$125 million in fourth-quarter 2018.

In the fourth quarter, the company expects its core yields to be 12.7%, stable sequentially.

The company expects operating expenses to be around $13.5-$14 million in the fourth quarter of 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Hercules Tech has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Hercules Tech has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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