Why Is Hercules Tech (HTGC) Up 1.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Hercules Technology (HTGC). Shares have added about 1.7% 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 Q2 Earnings Miss, Revenues Decline Y/Y

Hercules Capital’s second-quarter 2020 net investment income of 32 cents per share lagged the Zacks Consensus Estimate by a penny. The bottom line declined 11.1% from the year-ago reported figure.

Results reflected lower total investment income. However, a fall in operating expenses was a tailwind. Moreover, the balance sheet position remained strong during the quarter.

Net investment income was $35.7 million, up 1.2% from the prior-year quarter.

Total Investment Income & Expenses Decline

Total investment income was $68 million, down 1.9% from the year-ago quarter. The downside was mainly due to lower core yields and a fall in early loan repayments. The top line lagged the Zacks Consensus Estimate of $69.3 million.

Total quarterly operating expenses decreased 5% year over year to $32.3 million. The decline resulted from a fall in total employee compensation costs.

Solid Portfolio Value & New Commitments

The fair value of Hercules Capital’s total investment portfolio was $2.4 billion as of Jun 30, 2020.

In the reported quarter, the company provided $266.2 million in new debt and equity commitments as well as realized early loan repayments of $85.4 million.

Strong Balance Sheet Position

As of Jun 30, 2020, Hercules Capital’s net asset value was $10.19 per share compared with $10.55 on Dec 31, 2019.

The company had $510.9 million in liquidity — including $35.9 million of unrestricted cash and cash equivalents, — and $475 million in credit facilities as of Jun 30, 2020.

At the end of the second quarter, the weighted average cost of debt — comprising interest and fees — was 5.0%, down from 5.2% at the end of the prior-year quarter.

Outlook

The company does not expect any further rate decreases to have a material impact on its quarterly net investment income.

It expects $100-150 million of early payoffs in the third quarter of 2020.

The company continues to target leverage of 125%.

For the remainder of 2020, Hercules Capital expects core yields between 11% and 12%.

For third-quarter 2020, the company anticipates SG&A expenses of $15.5-$16.5 million.

Borrowing costs in the third quarter are projected to remain stable sequentially.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Hercules Tech has a subpar Growth Score of D, 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 D. 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 has been net zero. It's no surprise Hercules Tech has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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