It has been about a month since the last earnings report for Hercules Technology (HTGC - Free Report) . Shares have added about 0.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Hercules Tech due for a pullback? 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 Q1 Earnings Miss, Revenues Rise
Hercules Capital’s first-quarter 2019 net investment income of 30 cents per share missed the Zacks Consensus Estimate by a penny. The bottom line also was 3.2% lower than the year-ago figure. Results in the reported quarter included one-time charge of $1.6 million or 2 cents per share related to the full redemption of 6.25% notes due 2024.
Results were adversely impacted by rise in operating expenses. However, higher revenues, increase in net asset value and growth in investment portfolio acted as tailwinds.
Distributional net operating income came in at $32.5 million or 34 cents per share, compared with $28.4 million or 34 cents per share in the prior-year quarter.
Total Investment Income Improves, Expenses Rise
Total investment income was $58.8 million, up 20.7% from the year-ago quarter. This upside was mainly driven by higher average debt investment balance and an overall rise in the core yield. The figure beat the Zacks Consensus Estimate.
Total operating expenses jumped 31.5% year over year to $29.8 million. The increase was mainly due to higher interest expenses, loan fees, general and administrative costs, and total employee-compensation costs.
Total Portfolio Value & New Commitments
The fair value of Hercules Capital’s total investment portfolio was $2.1 billion as of Mar 31, 2019.
In the reported quarter, the company provided $414.8 million in new debt and equity-financing commitments. Further, since the close of first-quarter 2019 and as of Apr 30, 2019, Hercules closed new debt and equity commitments of $153.5 million to new and existing portfolio companies.
Balance Sheet Position
As of Mar 31, 2019, Hercules Capital’s net asset value was $10.26 per share compared with $9.90onDec 31, 2018. This rise was mainly driven by net realized gains on investments and a net change in unrealized appreciation.
The company had $247.2 million in liquidity, including $16.5 million in unrestricted cash and cash equivalents and $230.7 million in credit facilities, as of Mar 31, 2019.
At the end of the first quarter, the weighted average cost of debt comprising interest and fees was 5.8%, up from 5.3% from the prior-year quarter end.
Management expects each 25 basis points rise in Prime Rate to contribute nearly $4.4 million or 5 cents per share of NII annually.
Assuming market conditions remain favorable, the company anticipates a very healthy pipeline of portfolio company IPOs for the remainder of 2019 and M&A exit activity in its portfolio to continue at a steady pace.
The company expects $75-$100 million in prepayment activity during second quarter and nearly $100 million in each of the last two quarters of 2019.
Portfolio growth is anticipated to be between $300 million and $400 million in 2019. The company expects total new commitments for 2019 to exceed 2018 level of $1.2 billion.
In 2019, Hercules Capital expects core yields to be between 12.5% and 13%.
For the remainder of the year, expenses are expected to increase in line with the growth of the business. For the second quarter, SG&A expenses are projected to be in the range of $16-$16.5 million.
Return on equity (ROE) is anticipated to increase as the company continues to modestly raise leverage to its portfolio.
The company expects to maintain leverage at 125x in 2019 (driven by the expectation of early prepayments and increase in normal amortization) and intends to increase the same in 2020 if market conditions remain favorable.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Hercules Tech has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Hercules Tech has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.