Saratoga Investment Corp Initiated with a Buy at Cantor Fitzgerald

By George MacDonald

Saratoga Investment Corp (NYSE: SAR) received a Buy rating and a $21 price target from Cantor Fitzgerald analyst David Chiaverini yesterday. The company’s shares closed yesterday at $17.17.

Chiaverini noted, “We view Saratoga’s SBICs as positive. The company continues to ramp up investing in its first SBIC license with $59 million of equity invested out of $75 million capacity, and the second SBIC license will enable an additional $37.5 million of equity to be invested for a combined $112.5 million of SBIC equity. Once the full $112.5 million of equity is invested into its two SBICs, Saratoga will be able to obtain SBA debentures of $225 million. The borrowing terms of these SBA debentures are highly attractive to Saratoga given they are long- term, fixed-rate borrowings with an interest rate of roughly 3%, which we view as very positive. We estimate that proper utilization of an SBIC license enables a BDC to earn roughly 40% higher ROEs than its normal investment operations. We believe Saratoga is well-positioned for dividend increases owing to its substantial dividend coverage. Saratoga has the highest dividend coverage of the BDCs in our coverage universe with a 2016 NOI-to-dividend coverage ratio of 172%, which is well ahead of the peer group at 103%. Saratoga’s annualized regular quarterly dividend of $1.08 is easily covered by our FY:16 and FY:17 NOI estimates of $1.70 and $1.90, respectively, and we believe this sets the stage for a dividend increase on the horizon. Exemplifying its dividend-paying ability, Saratoga paid a $1.00 per share special dividend in 2Q:15. SAR shares are trading at 76% of book value, 9.3x our 2016 NOI estimate, and at a 6.3% dividend yield compared with peers at 88%, 9.3x, and 9.4%, respectively.”

Saratoga Investment Corp has an analyst consensus of Hold.

Based on Saratoga Investment Corp`s latest earnings report from February 28, the company posted quarterly revenue of $7.45M and quarterly net profit of $2.65M. In comparison, last year the company earned revenue of $6.14M and had a net profit of $1.76M.

Unlike BMO Capital`s latest rating, based on the recent corporate insider activity of 18 insiders, corporate insider sentiment is neutral on the stock.

According to TipRanks.com, Chiaverini is ranked #842 out of 3683 analysts.

Saratoga Investment Corp is a closed end management investment company that invests primarily in leveraged loans and mezzanine debt issued by private U.S. middle-market companies.