Hercules Capital, Inc. HTGC has priced a public offering of nearly 5 million shares of its common stock. The price per share for the offer is $12.64, which sums to total gross proceeds of $63.2 million. The completion of the offering, which is expected on Jun 17, is subject to customary closing conditions.
The company also gave underwriters the option to buy up to an additional 0.75 million shares.
Notably, it intends to use the proceeds from this offering for making acquisitions, and funding investments in debt and equity securities.
Morgan Stanley MS, Wells Fargo Securities — a division of Wells Fargo & Company WFC, and Keefe, Bruyette & Woods are acting as joint book-running managers for this purpose. The offering is made under the company’s shelf registration statement.
Factors in Favor of Hercules Capital
Earnings Growth: Hercules Capital has witnessed earnings per share (EPS) growth of nearly 2.9% over the past three-five years. Moreover, the uptrend is expected to continue in the near term as evidenced by its projected EPS growth rates of 10.9% for 2019 and 5.9% for 2020.
Superior Return on Equity (ROE): Hercules Capital’s ROE of 11.71% compares favorably with the industry average of 9.21%. This indicates that the company reinvests more efficiently than the industry.
Increasing Demand for Customized Financing: Hercules Capital has a concentrated focus on its credit performance. In first-quarter 2019, the company closed nearly $414.8 million of new debt and equity commitments. Since then and as of Apr 30, 2019, it completed new debt and equity commitments of $153.5 million. Driven by the rise in demand for customized financing, Hercules Capital expects total new commitments to exceed $1.2 billion in 2019.
Solid Liquidity Position: As of Mar 31, 2019, 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. Moreover, it has a steady capital deployment plan in place. In order to maintain its RIC status, it distributes approximates 90% of its taxable income. Hercules Capital is expected to be able to continue enhancing shareholder value through efficient capital deployment activities.
Looking at its price performance, shares of the company have gained 2.5% over the past year against 5.4% decline of the industry.
Thus, the public stock offering might support Hercules Capital's financial flexibility and help meet its financial obligations in an efficient way. Moreover, it provides ample scope to deploy capital for long-term growth opportunities and reward higher returns to stockholders at the same time.
However, as the company undertakes measures to improve originations, expenses are expected to increase in the near term. Thus, higher costs will likely hurt bottom-line growth to some extent.
Hence, the stock currently carries a Zacks Rank #3 (Hold).
A better-ranked stock from the same space is Ares Capital Corporation ARCC. The Zacks Consensus Estimate for its current-year earnings has been revised upward by 4.7%. Its shares have gained 16.5% over the past six months. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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