Earnings estimates for KCAP Financial, Inc. (KCAP) have been moving higher following its third quarter results, boosting this private equity firm to a Zacks #1 Rank (Strong Buy) status. A continued improvement in investment income should help KCAP enhance its profitability in the upcoming quarters. This stock appears to be an attractive value investment given its P/B multiple of just 1.2.
Impressive Third Quarter Results
On November 8, KCAP Financial reported third quarter net investment income per share of 25 cents, topping the Zacks Consensus Estimate by 8.7% and the year-ago income by 38.9%. The upsurge was mainly aided by growth in total interest income.
Net investment income of $7.1 million advanced 73.2% year over year, aided by higher capital structuring service fees and elevated interest from investments in debt securities. Total expenses were $3.2 million, almost in line with the year-ago period.
Earnings Estimates on an Upswing
Over the last 60 days, the Zacks Consensus Estimate for 2012 advanced 3.6% to 87 cents per share on the back of 2 upward revisions out of 3 total estimates, implying year-over-year growth of 24.8%. For 2013, the Zacks Consensus Estimate increased 5.2% to $1.02 as 1 of 3 estimates moved north, indicating year-over-year growth of 16.4%.
Along with an attractive P/B multiple, KCAP Financial has a forward P/E ratio as low as 10.8 (a P/E ratio under 15.0 and a P/B ratio below 3.0 generally indicate value). Furthermore, the company's share price has gained nearly 55.3% year to date.
KCAP Financial currently enjoys a dividend yield of 12.1%. Additionally, the company enhanced its quarterly dividend to 28 cents from 24 cents per share in December 2012. Therefore, in addition to being a value stock, the company offers a promising income opportunity.
Chart Shows Strength
KCAP Financial has witnessed strong price momentum since the third quarter earnings release. Moreover, the company has been continuously outperforming its 200-day moving average along with the S&P 500 over the last six months, exhibiting a steady growth trend. The year-to-date return for the stock is 55.3% compared with the S&P 500's return of 12.8%.
Headquartered in New York, KCAP Financial, a private equity and venture capital firm, focuses in mid-market, buyouts and mezzanine investments. With $3.4 billion of assets under management, the company invests through senior debt, second lien debt, secured and unsecured subordinated debt, mezzanine debt and equity. The company has a market cap of about $244.5 million. Bridge Capital Holdings (BBNK) is another Zacks #1 Rank (Strong Buy) in the same sector.
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