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Hercules Tech (HTGC) Down 2.7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Hercules Technology (HTGC). Shares have lost about 2.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hercules Tech due for a breakout? 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 Q4 Earnings Beat, Revenues Rise Y/Y

Hercules Capital’s fourth-quarter 2020 net investment income of 37 cents per share surpassed the Zacks Consensus Estimate of 33 cents. However, the bottom line declined 2.6% from the year-ago reported figure.

Results were aided by an improvement in total investment income. Moreover, the balance sheet position remained strong during the quarter. Nonetheless, a rise in operating expenses was a headwind.

Net investment income was $42.2 million, up 5.1% from the prior-year quarter.

For 2020, net investment income came in at $157.1 million or $1.39 per share compared with $143.3 million or $1.41 per share recorded in the previous year. The Zacks Consensus Estimate for net investment income per share was $1.35.

Total Investment Income Improves, Expenses Rise

Quarterly total investment income was $75.3 million, up 6.7% from the year-ago quarter. The upside was mainly driven by higher average debt investment balance and fee income from higher early loan repayments. The top line also surpassed the Zacks Consensus Estimate of $70.2 million.

For the year, total investment income was $287.3 million, up 7.2% year over year. The figure surpassed the Zacks Consensus Estimate of $282.1 million.

Total quarterly operating expenses flared up 8.8% year over year to $33.2 million. The rise resulted from an increase in all cost components.

Portfolio Value & New Commitments Solid

The fair value of Hercules Capital’s total investment portfolio was $2.35 billion as of Dec 31, 2020.

In the reported quarter, the company delivered $150.8 million in new debt and equity commitments as well as realized early loan repayments of $282.3 million.

Balance Sheet Position Strong

As of Dec 31, 2020, Hercules Capital’s net asset value was $11.26 per share compared with $10.55 on Dec 31, 2019.

The company had $673.3 million in liquidity — including $198.3 million of unrestricted cash and cash equivalents, and $475 million in credit facilities — as of Dec 31, 2020.

At the end of the fourth quarter, the weighted average cost of debt — comprising interest and fees — was 5.2%, up from 5% in the prior-year quarter end.

Outlook

The company expects prepayments to remain elevated in the near term and then revert back to more normal levels in the second half of 2021. In first-quarter 2021, early payoffs are expected to be between $150 million and $200 million.

Given more than $280 million of early repayments in fourth-quarter 2020 and the resulting $184 million decline in debt investment portfolio, the company expects first-quarter net interest income to decline sequentially.

For the first quarter, the company anticipates selling, general & administration (SG&A) expenses of $16-$17 million.

Borrowing costs in the first quarter are projected to increase slightly due to the increase in fee recognition and the continued pay-down of the second Small Business Administration (“SBA”) license.

For 2021, Hercules Capital expects core yields between 11% and 12%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -10.82% due to these changes.

VGM Scores

At this time, Hercules Tech has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Hercules Tech has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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