It has been about a month since the last earnings report for Hercules Capital, Inc. HTGC. Shares have lost about 2.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Hercules Capital’s Q1 Earnings & Revenues Lag Estimates

Hercules Capital’s first-quarter 2017 net investment income of $0.28 per share lagged the Zacks Consensus Estimate by a penny. However, the figure reflected a rise of 12.8% from the year-ago quarter.

Lower-than-expected results were attributable to a rise in expenses, partially offset by higher total investment income. While a sound liquidity position and growth in investment portfolio remained impressive, a fall in net asset value was on the downside.

Distributional Net Operating Income for the quarter came in at $24.5 million or 30 cents per share compared with $22.7 million or 32 cents per share in the prior-year quarter.

Total Investment Income Improves, Expenses Rise

Total investment income in the reported quarter was $46.4 million, up 19.3% year over year. The increase is mainly driven by debt investment portfolio growth and a greater weighted average principal outstanding of the company's debt investment portfolio between the periods. However, the figure was below the Zacks Consensus Estimate of $48.3 million.

Total operating expenses rose 25.7% year over year to $23.7 million. The rise was largely led by an increase in interest and loan fees.

Total Portfolio Value & New Commitments

The fair value of Hercules Capital’s total investment portfolio was $1.41 billion as of Mar 31, 2017. In the reported quarter, the company provided approximately $191 million in new debt and equity-financing commitments to new and existing portfolio companies.

Balance Sheet

As of Mar 31, 2017, Hercules Capital’s net asset value was $9.76 per share compared with $9.90 as of Dec 31, 2016. The company had $343.1 million in liquidity, including $148.1 million in unrestricted cash and cash equivalents and $195 million in credit facilities as of Mar 31, 2017.

At the end of the first quarter, the weighted average cost of debt, comprising interest and fees was 6.3%, up 5.5% in the prior-year quarter. The increase was mainly due to the one-time, non-cash acceleration of unamortized fees due to the redemption of 2019 Notes. Adjusted weighted average cost of borrowings was 5.7%.

Outlook

Management expects each 25 basis points rise in Prime Rate to contribute nearly $2.4 million or 0.03 per share of net investment income annually.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

Hercules Capital, Inc. Price and Consensus

 

Hercules Capital, Inc. Price and Consensus | Hercules Capital, Inc. Quote

VGM Scores

At this time, the stock has a poor Growth Score of 'F', a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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