Hercules Capital (HTGC) Rides on Robust Loan Originations
Hercules Capital, Inc. HTGC is expected to keep witnessing a rise in revenues on expectations of growing demand for customized financing. Moreover, backed by solid balance sheet and liquidity positions, its capital deployment activities seem sustainable.
Analysts seem optimistic regarding the company’s earnings growth potential. Over the past 60 days, the Zacks Consensus Estimate for HTGC’s 2023 earnings has been revised 1% upward. The company currently carries a Zacks Rank #2 (Buy).
Over the past year, shares of Hercules Capital have gained 4.4% against the industry’s decline of 0.8%.
Image Source: Zacks Investment Research
Looking at its fundamentals, As of Mar 31, 2023, the company had $553.1 million in liquidity, including $71.1 million in unrestricted cash and cash equivalents, and $482 million in credit facilities. HTGC has the availability to draw on credit facilities when required.
Also, the company has long-term issuer ratings of BBB- and Baa3 from Fitch Ratings and Moody’s Investors Service, respectively, along with a stable outlook, which render it favorable access to the debt market. Thus, supported by sufficient earnings strength and a solid balance sheet, the company is expected to be able to continue to meet debt obligations in the near term, even if the economic situation worsens.
Hercules Capital is a small participant in a market with huge growth prospects. We are encouraged by the company’s concentrated focus on its credit performance. In 2021, it closed $2.6 billion in new debt and equity commitments, whereas in 2022, it closed $3.13 billion. In the first quarter of 2023, the company delivered $526 million in gross new debt and equity commitments. From the end of the first quarter to May 4, it closed new gross debt and equity commitments worth $1 million.
Thus, driven by the rise in demand for customized financing and a robust deal pipeline, total new commitments are expected to keep increasing.
Further, Hercules Capital’s capital deployment plan seems impressive. In order to maintain its RIC status, the company distributes approximately 90% of its taxable income. It announced an 8.3% hike in the quarterly distribution in February 2023, following a 2.9% hike in October 2022, a 6.1% hike in July, a 3.1% hike in October 2021 and a 3.2% hike in May 2019. Management plans to revisit its dividend policy at the end of every quarter and determine if any changes are required.
Given a solid liquidity position, the company will likely be able to continue enhancing shareholder value through efficient capital deployment activities.
However, Hercules Capital’s total gross operating expenses witnessed a compound annual growth rate of 9.4% over the last five years (2018-2022) because of increased compensation costs and interest expenses. The upward trend in costs continued in the first quarter of 2023. While the company’s efforts to expand originations will likely lead to enhanced growth prospects, it is expected to result in elevated costs in the near term, which may put pressure on the bottom line.
Also, persistent regulatory constraints amid the tough economic scenario may lead to increased costs of funding and thereby limit the company’s access to the capital markets.
A couple of other top-ranked stocks from the finance space are Capital Southwest Corporation CSWC and Artisan Partners Asset Management Inc. APAM, carrying a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for CSWC’s current fiscal-year earnings has been revised 2% upward over the past 60 days. In the past year, CSWC’s shares have rallied 5.3%.
The Zacks Consensus Estimate for APAM’s 2023 earnings has been revised 2.2% upward over the past 60 days. APAM’s shares have rallied 4.4% in the past 12 months.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Hercules Capital, Inc. (HTGC) : Free Stock Analysis Report
Artisan Partners Asset Management Inc. (APAM) : Free Stock Analysis Report
Capital Southwest Corporation (CSWC) : Free Stock Analysis Report
