Positive earnings momentum on the back of strong second quarter results – including an earnings surprise of 16.1% – helped Solar Senior Capital Ltd. (SUNS - Free Report) achieve a Zacks #1 Rank (Strong Buy) on September 20. Moreover, this investment management company has increased dividend for the third consecutive month in September.
With a solid year-to-date return of 21.5% and a decent dividend yield of 7.8%, this stock offers an attractive investment opportunity.
The Rank Driver
Better-than-expected second quarter earnings, consecutive dividend increases and decent interest income growth are the primary rank drivers for this stock.
Solar Senior Capital reported its second quarter results on July 31 with net investment income per share of 36 cents, beating the Zacks Consensus Estimate of 31 cents by 16.1% and increasing more than four times from the year-ago income of 8 cents. Robust results for the reported quarter were primarily aided by elevated investment income aided by higher interest earned on investment portfolio.
Net investment income increased significantly to $3.4 million from $0.8 million in the year-ago quarter. However, on the downside, total expense escalated significantly on a year-over-year basis to $3.4 million. Elevated investment advisory and management fees, higher performance-based incentive fees and increased administrative service fees primarily led to the overall rise in total expenses.
Recently, Solar Senior Capital declared an increased dividend of 11.75 cents per share for the month of September 2012, indicating an augmentation of 2.2% compared with the prior month. The dividend will be paid on October 2, 2012 to stockholders of record on September 20, 2012. This indicates the company’s third consecutive increase since July 2012.
The Zacks Consensus Estimate for 2012 increased 4.7% to $1.35 per share over the last 60 days. The current estimate implies a year-over-year growth of 351.1%. For 2013, over the same time frame, the Zacks Consensus Estimate surged 5.0% to $1.48 per share, indicating a year-over-year growth of 9.6%.
Solar Senior Capital currently trades at a forward P/E of 13.4x, a 5.5% premium to the peer group average of 12.7x. On a price-to-book basis, the shares are trading at 1.0x, an 11.1% premium to the peer group average of 0.9x. Given the company's strong fundamentals, the valuation looks reasonable.
Solar Senior Capital has a trailing 12-month ROE of 4.6% compared with the peer group average of 6.5%.
About the Company
Headquartered in Maryland, Solar Senior Capital is an investment management company elected to be treated as a business development company under the Investment Company Act of 1940. It invests mainly in leveraged, middle-market companies in the form of senior secured loans, including first lien, unitranche and second lien debt instruments. The company, which was incorporated in 2010, has a market capitalization of roughly $172.1 million.
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