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Hercules Capital (HTGC) Posts In-Line Q1 Earnings, Up Y/Y

Hercules Capital, Inc.’s HTGC first-quarter 2016 net investment income of 28 cents per share was in line with the Zacks Consensus Estimate. Also, the figure compared favorably with the year-ago tally of 20 cents.

Results benefited from a higher total investment income. Further, the company’s solid liquidity position and growth in investment portfolio remained impressive. However, higher operating expenses were an undermining factor.

Distributional Net Operating Income for the quarter came in at $22.7 million or 32 cents per share, up from $15.7 million or 25 cents per share in the prior-year quarter.

Performance in Detail

Total investment income in the reported quarter was $38.9 million, up 20% year over year. The rise was mainly driven by growth in loan portfolio. However, the figure missed the Zacks Consensus Estimate of $41 million.

Interest expense and finance fees were $8 million, down 15% from the prior-year quarter.

Total operating expenses (excluding interest expense and loan fees) increased 7% year over year to $10.8 million. The rise was largely led by higher total employee compensation costs.

As of Mar 31, 2016, the weighted average cost of debt, comprising interest, fees and loss of debt extinguishment, was 5.5% versus 6.1% as of Mar 31, 2015.

Business Highlights

The fair value of Hercules Capital’s total investment portfolio was $1.3 billion as of Mar 31, 2016. In the quarter, the company provided approximately $220.9 million in new debt and equity-financing commitments to new and existing portfolio companies.

As of Mar 31, 2016, Hercules Capital’s net asset value was $9.81 per share compared with $9.94 as of Dec 31, 2015. The company had $122.5 million in liquidity, including $13.5 million in cash and $109 million in credit facilities as of Mar 31, 2016.

Our Viewpoint

We believe Hercules Capital has potential for further top-line growth, based on its investments in booming sectors such as technology. Additionally, enhanced capital-deployment activities are expected to boost investors’ confidence. Nevertheless, an uncertain economic environment might increase cost of funding and limit the company’s growth, going forward.

Currently, Hercules Capital carries a Zacks Rank #3 (Hold).

About Other Mortgage Investment Firms

Ares Capital Corporation's ARCC reported a negative earnings surprise of 5.1% in first-quarter 2016 results. Core earnings of 37 cents per share lagged the Zacks Consensus Estimate of 39 cents. Weakness in net investment income and higher operating expenses were the headwinds.

FS Investment Corporation FSIC and Garrison Capital Inc. GARS are both scheduled to report their March-end quarter results on May 9.

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ARES CAP CP (ARCC): Free Stock Analysis Report
 
HERCULES CAP (HTGC): Free Stock Analysis Report
 
GARRISON CAPITL (GARS): Free Stock Analysis Report
 
FS INVESTMENT (FSIC): Free Stock Analysis Report
 
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