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A month has gone by since the last earnings report for Hercules Technology (HTGC). Shares have added about 4.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Hercules Tech due for a pullback? 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 drivers.
Hercules Capital Q1 Earnings Beat Estimates on Higher Revenues
Hercules Capital’s first-quarter 2020 net investment income of 37 cents per share outpaced the Zacks Consensus Estimate by a penny. The bottom line also grew 23.3% from the year-ago reported figure.
The results reflect higher total investment income and a strong balance sheet position. However, a rise in operating expenses acted as a headwind.
Net investment income was $40.6 million, up 39.8% from the prior-year quarter.
Total Investment Income & Expenses Rise
Total investment income was $73.6 million, up 25.2% from the year-ago quarter. The upside was mainly driven by a higher average debt investment balance and rise in income from acceleration due to early loan repayments. The top line beat the Zacks Consensus Estimate of $69.8 million.
Total quarterly operating expenses increased 11% year over year to $33 million. The increase resulted from a rise in all expense components, except stock-based compensation costs.
Solid Portfolio Value & New Commitments
The fair value of Hercules Capital’s total investment portfolio was $2.3 billion as of Mar 31, 2020.
In the reported quarter, the company provided $256.8 million in new debt and equity commitments, as well as realized early loan repayments of $150.5 million.
Strong Balance Sheet Position
As of Mar 31, 2020, Hercules Capital’s net asset value was $9.92 per share compared with $10.55 on Dec 31, 2019.
The company had $438.2 million in liquidity — including $34.3 million of unrestricted cash and cash equivalents, and $403.9 million in credit facilities — as of Mar 31, 2020.
At the end of the first quarter, the weighted average cost of debt — comprising interest and fees — was 5.2%, down from 5.9% at the end of the prior-year quarter.
The multiple rate cuts are expected to negatively impact quarterly earnings by $0.01-$0.02 per share. Notably, the company does not expect any further rate increases to have a material impact on its quarterly net investment income.
The company expects $50-100 million in prepayment activity in the second quarter of 2020.
The company continues to target leverage of 125%.
For 2020, Hercules Capital expects core yields to be between 11% and 12%.
For second-quarter 2020, the company anticipates SG&A expenses of $15.5-$16.5 million.
Given the increase in activity and use of credit facilities in the first quarter, borrowing costs are projected to rise in second-quarter 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -6.47% due to these changes.
At this time, Hercules Tech has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
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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Hercules Capital, Inc. (HTGC) : Free Stock Analysis Report
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