FBR Capital Reiterates a Buy Rating on Prospect Capital

By Ryan Adsit

In a report issued on November 9, Christopher Nolan from FBR Capital reiterated a Buy rating on Prospect Capital (NASDAQ: PSEC), with a price target of $9. The company’s shares closed yesterday at $7.69.

Nolan commented:

“We are slightly lowering our FY17 and FY18 EPS estimates following F1Q17 results. PSEC reported F1Q17 EPS of $0.22, below both our estimate of $0.25 and the consensus of $0.24. The EPS miss was due to lower interest income following the sale of Harbortouch last quarter, which contributed $0.05 to EPS in F4Q16. NAV/ share declined by $0.02 since F4Q16 due to dividends modestly exceeding EPS. Asset quality remained stable with a 20-bp increase in nonaccrual loans and a 60-bp decline in energy exposure. Looking ahead, we believe that PSEC will be able grow portfolio assets to generate EPS that will consistently meet or exceed the current dividend and that it has sufficient current spillover income to support the dividend if necessary. We are modeling for modest incremental NAV/share erosion in FY17 but believe asset quality will remain manageable. While asset quality and valuation marks have been a persistent overhang on PSEC’s share price valuation multiples, we believe that a steady dividend and modest EPS growth will enable PSEC shares to narrow their multiple discount to peers.”

According to TipRanks.com, Nolan is a 1-star analyst with an average return of -1.0% and a 58.9% success rate. Nolan covers the Financial sector, focusing on stocks such as Hercules Technology Growth Capital, Pennantpark Investment Corp., and Atlantic Capital Bancshares.

Prospect Capital has an analyst consensus of Moderate Buy.

The company has a one year high of $8.68 and a one year low of $5.21. Currently, Prospect Capital has an average volume of 1.92M.

Based on the recent corporate insider activity of 44 insiders, corporate insider sentiment is positive on the stock. This means that over the past quarter there has been an increase of insiders buying their shares of PSEC in relation to earlier this year. Most recently, in September 2016, Brian Oswald, the CFO, CCO, Treasury & Secretary of PSEC bought 4,000 shares for a total of $31,400.

Prospect Capital Corp. is a business development company that invests in middle-market companies with EBITDA $5 to $150 million, revenues less than $750 million and enterprise values of less than $1 billion primarily located in the US and Canada. The fund targets companies operating across a wide variety of industries, including manufacturing, industrials, Consumer services, Consumer products, energy, business services, financial services, food, healthcare, and media. It invests primarily in the form of first-lien and second-lien senior loans and mezzanine debt for refinancing, leveraged buyouts, acquisitions, recapitalizations and later-stage growth investments. It makes investment in the range of $20 to $400 million per transaction. It acquires control positions and makes co-investments. It also invests in the equity and subordinated debt tranches of collateralized loan obligation.