Hercules Capital Poised For Growth, Costs Remain A Worry

On Aug 12, 2016, we issued an updated research report on Hercules Capital, Inc. (NYSE:HTGC) . Despite mounting expenses, increased regulations and threat of a rise in funding costs, the company remains well positioned for future growth based on its strong liquidity position and robust loan originations.

Hercules maintains a robust liquidity position which will enable it to invest in new ventures without raising any additional capital. Also, Hercules exhibits huge growth prospects as the company places a consistent focus on improving its credit performance.

Hercules is further expected to witness increased demand for its customized financing from private equity firms and venture capitalists in the coming quarters. This is because of the market optimism for public equities and an improving economic environment.

Moreover, the company’s steady capital deployment activities are quite impressive. Hercules has been paying dividends consistently and has a policy of distributing four quarterly dividends in an amount that approximates 90–100% of the company’s taxable income. Notably, any additional earnings may be distributed by the Board as a special cash dividend at the year-end.

However, rising operating expenses continue to be a matter of concern. We believe expenses will remain elevated as the company continues to expand its originations. While this will likely lead to enhanced growth prospects, bottom line might face some pressure in the near term.

Notably, Hercules’ concentration risk is high as there is a chance that management will stretch the investment size in order to grow more quickly and fully leverage its equity. Additionally, increased dependence on domestic revenues may lead to increased costs of funding, and thereby limit the company’s access to capital market.

Nonetheless, Hercules remains on track to achieve the targeted investment loan portfolio of $1.3–$1.5 billion by early fourth quarter of 2016 or by the first quarter of 2017 and expects to witness $45–$50 million of investment activities for 2016.

Driven by these positives, analysts are bullish on the stock. Over the past 30 days, the Zacks Consensus Estimate has increased 1.7% and 0.8% for 2016 and 2017, respectively.

Other Stocks That Warrant a Look

Some comparable stocks in the industry include Gladstone Investment Corporation (NASDAQ:GAIN) , Marlin Business Services Corp. (NASDAQ:MRLN) and Solar Capital Ltd. (NASDAQ:SLRC) .


HERCULES CAP (HTGC): Free Stock Analysis Report

MARLIN BUS SVCS (MRLN): Free Stock Analysis Report

SOLAR CAPITAL (SLRC): Free Stock Analysis Report

GLADSTONE INVES (GAIN): Free Stock Analysis Report

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