American Capital Upped to Strong Buy

Zacks

On Apr 6, Zacks Investment Research upgraded American Capital Ltd. (ACAS) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Better-than-expected fourth-quarter results, improving credit quality and enhanced asset coverage ratio are the primary rank drivers for this stock. Moreover, this well-known private equity and venture capital firm delivered an average earnings surprise of 37.4% in the last four quarters.

American Capital reported fourth-quarter results on Feb 11. Earnings per share came in at 26 cents, beating the Zacks Consensus Estimate by a penny but significantly lower than the prior-year quarter’s earnings of 67 cents.

Positive results were attributable to top-line growth, followed by decreased operating expenses reflecting prudent expense management. Moreover, new investments and reduction of debt acted as positives.

As of Dec 31, 2012, non-accrual loans were $177 million, representing 9% of total loans at fair value, down from $252 million of non-accrual loans, indicating 12.5% of total loans at fair value, as of Sep 30, 2012. Moreover, American Capital’s asset coverage ratio improved substantially to 801% at the end of 2012 from 465% in the prior year.

Moreover, American Capital is expected to announce its first-quarter 2013 results on Apr 29. The Zacks Consensus Estimate for the quarter is 28 cents per share. The Zacks Earnings ESP (Read: Zacks Earnings ESP: A Better Method) for the company is +21.4% for the first quarter. This, along with its Zacks Rank #1 (Strong Buy), make us confident regarding a positive earnings surprise call.

Other Stocks to Consider

Among peers of American Capital, NewStar Financial, Inc. (NEWS), KCAP Financial Inc. (KCAP) and Medallion Financial Corp. (TAXI) carry a Zacks Rank #2 (Buy).

Read the Full Research Report on ACAS

Read the Full Research Report on NEWS

Read the Full Research Report on KCAP

Read the Full Research Report on TAXI

Zacks Investment Research



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