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Hercules Capital, Inc. HTGC stock is a good investment option right now, supported by its earnings growth. The company's total investment income is anticipated to keep improving in the near term. Further, its substantial capital deployment activities are likely to enhance shareholder value.
The Zacks Consensus Estimate for Hercules Capital's 2023 earnings has been revised 1% upward over the past 60 days. This shows that analysts are optimistic regarding the company’s growth prospects. HTGC currently carries a Zacks Rank #2 (Buy).
Over the past six months, shares of HTGC have gained 11.5% compared with the industry's upside of 0.7%.
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Mentioned below are some key factors that make HTGC an attractive investment option now.
Earnings Growth: In the last three to five years, the company witnessed earnings per share growth of 3.2% against the industry’s decline of 0.4%. Our model indicates net investment income per share to increase 28% in 2023.
HTGC has a decent earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, with the average surprise being 5.62%.
Revenue Growth: Hercules Capital’s total investment income has grown at a compound annual growth rate of 6.3% over the last three years (2019-2022). The uptrend continued in the first quarter of 2023 on a year-over-year basis.
Hercules Capital is a small participant in a market with huge growth prospects. In 2021 and 2022, it originated $2.6 billion and $3.13 billion, respectively, in new debt and equity commitments. In the first quarter of 2023, the company delivered $526 million in gross new debt and equity commitments. Driven by the rise in demand for customized financing and a robust deal pipeline, total new commitments are expected to keep increasing, thereby positively impacting the top line.
We project the company's total investment income to witness growth of 30.7% in 2023 and 3.9% in 2024.
Superior Return on Equity (ROE): Hercules Capital’s current ROE is 15.58% compared with the industry average of 10.79%. This underlines that the company is more efficient in using shareholders’ funds than its peers.
Efficient Capital Deployments: Hercules Capital’s capital deployment plan seems impressive. To maintain its RIC status, the company distributes approximately 90% of its taxable income. In February, the firm raised its dividend by 8.3% to 39 cents per share. In the past five years, it increased its dividend 12 times, with an annualized dividend growth rate of 3.8%. Considering the last day’s closing price of $15.06, HTGC’s dividend yield currently stands at 10.36%.
Management plans to revisit its dividend policy at the end of every quarter and determine if any changes are required. Thus, given a solid liquidity position, the company will likely be able to continue enhancing shareholder value through efficient capital deployment activities.
Other Stocks Worth a Look
A couple of other top-ranked stocks from the same space are Blackstone Secured Lending Fund BXSL and Main Street Capital MAIN.
The Zacks Consensus Estimate for Blackstone Secured Lending's current-year earnings has been revised marginally upward over the past 30 days. Its shares have gained 15.1% in the past six months. Currently, BXSL sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Main Street Capital carries a Zacks Rank #2 at present. Earnings estimates for MAIN for 2023 have been revised marginally upward over the past 30 days. In the past six months, MAIN shares have rallied 4.3%.
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