On Jan 5, 2015, we issued an updated research report on Hercules Technology Growth Capital, Inc. (HTGC). While lower operating expenses are boosting the company’s financials, declining fees and interest income, a top-line headwind, remain a concern.
Hercules Technology, a specialty finance company that provides venture capital to technology and life science-related companies, achieved $900 million of annual new origination commitments for 2014 (as of Dec 23, 2014), meeting its yearly growth target of $800–$900 million. This reflects the company’s focus on its credit performance, which will help accelerate growth going forward.
The company’s expenses declined 4.6% in the first nine months of 2014, reflecting management’s efforts to improve expense management. Yet, rising expenses have been a challenge for the company over the last five years. Its stepped up investment activities might also raise expenses in the near term.
On the other hand, the company’s assets decreased 1.8% as of Sep 30, 2014 compared with the Dec 31, 2013 level. Also, the pressure on fees and interest income will likely weigh on the revenue generation of the company.
Though Hercules Technology’s considerable investments in the booming technology sector broaden the scope for future growth, uncertain economic conditions along with increasing regulatory pressure may mar profitability going forward. The 1.6% fall in the share price in 2014 reveals skepticism among investors regarding the company’s future performance.
The lackluster trend was also observed in the Zacks Consensus Estimate for 2014 and 2015, which remained flat over the last 30 days.
Currently, Hercules Technology carries a Zacks Rank #2 (Buy).
Stocks That Warrant a Look
Some other favorably ranked mortgage investment firms include Ares Capital Corporation (ARCC), Garrison Capital Inc. (GARS) and Full Circle Capital Corporation (FULL). While Ares Capital and Garrison Capital sport a Zacks Rank #1 (Strong Buy), Full Circle Capital carries the same rank as Hercules.
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