On Thursday, Wells Fargo (NYSE:WFC) adjusted its financial outlook for Prospect Capital (NASDAQ:PSEC) Corporation (NASDAQ:PSEC), reducing the price target to $5 from the previous $5.50 while maintaining an Underweight rating on the stock. The firm noted a shift in Prospect Capital's financing strategy, with floating rate preferences becoming a focal point.
Prospect Capital has recently increased its issuance of floating rate preferred shares, with approximately 1.8 million shares, each with a $25 par value, issued during the quarter. This accounts for roughly 75% of the net preferred issuance in that period. Meanwhile, the conversion of these preferred shares into common stock has decelerated, dropping to about 0.6% from around 1% in the last quarter.
The Wells Fargo analyst projected adjustments to Prospect Capital's net operating income (NOI) estimates, now expecting $0.77 and $0.67 for fiscal years 2024 and 2025, respectively. These figures have been revised downward from previous estimates of $0.82 and $0.73, primarily due to anticipated lower income from collateralized loan obligations (CLOs) and other sources, as well as changes in the Secured Overnight Financing Rate (SOFR) curve.
Furthermore, Wells Fargo has introduced its forecast for fiscal year 2026, setting the NOI estimate at $0.60. This projection is based on the presumption that Prospect Capital's "Liability Alpha" will diminish as a result of debt maturities. Despite the downward adjustments, the firm acknowledged the potential for upside through accelerated CLO rotation or increased income from controlled companies.
The new price target of $5 is grounded on a 14% yield on the forward NOI, as per the analysis by Wells Fargo. The maintained Underweight rating indicates the firm's cautious stance on Prospect Capital's stock performance moving forward.
InvestingPro Insights
As Wells Fargo adjusts its outlook on Prospect Capital Corporation (NASDAQ:PSEC), investors may seek additional insights to inform their strategy. According to the latest data from InvestingPro, Prospect Capital has a market capitalization of $2.35 billion and a P/E ratio of 15.39, which may influence perceptions of the company's valuation in the context of its industry. The company's revenue for the last twelve months as of Q3 2024 stands at $870.9 million, with a growth rate of 6.82% during that period, signaling a steady business performance.
For those interested in dividend income, an InvestingPro Tip highlights Prospect Capital's significant dividend yield of 12.72%, which is notably high and could appeal to income-seeking investors. Moreover, the company has maintained dividend payments for 21 consecutive years, underscoring its commitment to returning value to shareholders. On the other hand, investors should be aware that short-term obligations exceed liquid assets, which could present liquidity concerns.
For further insights and analysis, there are additional InvestingPro Tips available that could provide a deeper understanding of Prospect Capital's financial health and future outlook. Investors can access these tips and more detailed metrics by visiting https://www.investing.com/pro/PSEC. To enhance your InvestingPro experience, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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