On Jan 2, Zacks Investment Research upgraded Stellus Capital Investment Corporation (SCM) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
The rank upgrade of this Houston-based non-diversified investment management company was driven by strong estimate revisions that came on the back of the recent reorganization of its revolving credit facility and impressive fiscal third-quarter results.
On Nov 24, Stellus Capital announced that it has inked an agreement for the first amendment to its Senior Secured Revolving Credit facility. Per the amendment, the maturity date of the credit facility has been extended to Oct 1, 2018 from Nov 14, 2016 while the revolving period has been extended to Oct 1, 2017 from Nov 12, 2015.
Further, the applicable margin rate for LIBOR-based loans has been reduced to 2.625% per annum from the previous rate of 3.00% per annum. Also, the applicable margin rate for other loans, which are based on a reference rate instead of LIBOR has been reduced to 1.625% per annum from the previous rate of 2.00% per annum.
Though the amendment trims the initial aggregate commitments under the credit facility to $120 million but includes a feature that will enable Stellus Capital to increase the aggregate commitments up to $195 million. This is subject to new or existing lenders consent for the same and other customary conditions.
With extension of the maturity date and revolving period, we believe the amendment provides decent financial flexibility to the company. Further, lowering of the margin rates eases pressure on interest expenses.
We also remain optimistic about the company’s performance. Driven by higher interest income and lower expenses (net of fee waivers), Stellus Capital delivered a positive earning surprise of 40%. Net investment income per share for the fiscal third-quarter 2014 (ended Sep 2014) came in at 42 cents, significantly beating the Zacks Consensus estimate of 30 cents per share.
As of Sep 30, 2014, Stellus Capital’s total assets stood at $296.4 million while the investment portfolio was of $284.1million at fair value.
Analysts’ bullish stance on the stock was reflected in the estimate revisions over the past 60 days. For 2014, the Zacks Consensus Estimate increased 3.1% to $1.33 per share. Also, it advanced nearly 1% to $1.37 per share for 2015.
Other Stocks to Consider
Other stocks in the finance space worth considering include Customers Bancorp, Inc. (CUBI), Meridian Bancorp, Inc. (EBSB) and Baylake Corp. (BYLK). All three stocks sport the same Zacks Rank as Stellus Capital.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment