On Thursday, Piper Sandler adjusted its stock price target for Hercules Capital Inc (NYSE:NYSE:HTGC), a specialty finance company, reducing it to $22.00 from the previous $22.50. Despite the adjustment, the firm maintained its Overweight rating on the stock.
The revision follows Hercules Capital's recent earnings report, which was described as in line with expectations, despite a significant slowdown in venture activity during the third quarter of 2024, attributed to uncertainties surrounding interest rates and the election season.
The analyst from Piper Sandler highlighted Hercules Capital's robust investment income and stable credit quality as positive aspects of the company's performance. Notably, the firm has maintained just two loans on non-accrual, with the dollar values of these non-performing loans remaining effectively unchanged. The stable credit quality is seen as an indicator of the company's resilience in the current economic climate.
Looking ahead, Piper Sandler anticipates a decrease in earnings per share (EPS) for Hercules Capital as rate cuts are expected to affect the company's floating rate portfolio. However, the analyst expressed a positive outlook for the company's future, suggesting that lower interest rates could lead to an uptick in venture capital activity into 2025. This prospective increase in venture activity is seen as a potential driver for Hercules Capital's business.
In light of these expectations, Piper Sandler has revised its EPS estimates for Hercules Capital downward for both 2024 and 2025, setting them at $2.02 and $1.89, respectively. These new estimates reflect a slight decrease from the former projections of $2.03 and $2.09. The new stock price target of $22.00 is based on 185% of the firm's slightly lowered net asset value (NAV) estimate, which remains unchanged as a multiple.
In other recent news, Arcus Biosciences (NYSE:RCUS) has secured a $250 million term loan facility with Hercules Capital. This funding is intended to advance the development of Arcus's cancer treatment candidate, casdatifan.
The loan agreement provides immediate access to $50 million, with the option for Arcus to draw an additional $100 million at its discretion. A further $100 million tranche is conditionally available for strategic initiatives, pending Hercules's approval.
On the other hand, Hercules Capital has announced record total gross funding of $461.5 million for the second quarter of 2024, contributing to a total of $1.07 billion for the first half of the year. The company's asset management increased by 14.7% year-over-year, totaling approximately $4.6 billion.
Despite anticipating higher market volatility, Hercules Capital plans to maintain a defensive yet flexible approach to seize market opportunities.
Furthermore, Hercules Capital recently received shareholder approval to issue shares of its common stock below its net asset value, providing the company with flexibility in raising capital. These are significant recent developments for both Arcus Biosciences and Hercules Capital.
InvestingPro Insights
Hercules Capital Inc (NYSE:HTGC) continues to demonstrate financial resilience, as reflected in both its market performance and dividend policy. According to InvestingPro data, the company boasts a market capitalization of $3.19 billion and a P/E ratio of 11.09, suggesting a relatively attractive valuation compared to its earnings. This aligns with Piper Sandler's maintained Overweight rating, despite the slight reduction in price target.
One of the standout features of Hercules Capital is its dividend policy. An InvestingPro Tip highlights that the company "has maintained dividend payments for 20 consecutive years," which is particularly noteworthy given the economic uncertainties mentioned in the article. Furthermore, the current dividend yield stands at an impressive 9.65%, making it an attractive option for income-focused investors.
The company's financial performance also appears robust, with revenue growth of 19.76% over the last twelve months as of Q2 2024, and an EBITDA growth of 23.96% over the same period. These figures support the analyst's observation of Hercules Capital's strong investment income.
For investors seeking a deeper understanding of Hercules Capital's financial health and prospects, InvestingPro offers 7 additional tips, providing a more comprehensive analysis to inform investment decisions.
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