On Sep 9, we downgraded
American Capital, Ltd.
) to Underperform based on this private equity and venture
capital firm's dismal second-quarter results.
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Why the Downgrade?
Estimates for American Capital have been going down ever since it
reported second-quarter results on Jul 30. American Capital's
second-quarter operating income of 16 cents per share lagged the
Zacks Consensus Estimate by 9 cents. Operating revenues of $130
million also missed the Zacks Consensus Estimate.
Following the release of the results, the Zacks Consensus
Estimate for 2013 has gone down by 11% to 91 cents per share. The
Zacks Consensus Estimate for 2014 has also declined by 12% to
$1.02 per share. With both downward revisions, the company now
has a Zacks Rank #5 (Strong Sell).
Causes of Concern
American Capital was significantly impacted by the global
financial crisis, which limited its access to the debt and equity
capital markets. The market disruption and liquidity crisis also
reduced the volume of mergers and acquisitions in the market,
thereby affecting the company's ability to continue generating
Additionally, a persistent low interest rate environment
adversely affected American Capital's revenue growth. Moreover,
American Capital has investments in privately-held, middle-market
businesses that are more susceptible to general market declines,
resulting from narrower product lines, smaller market shares, and
highly-leveraged capital structures.
Stocks That Warrant a Look
While we prefer to avoid American Capital until we see signs of
improvement in the company's performance, other stocks that are
worth a look include
Marlin Business Services Corp.
Hercules Technology Growth Capital, Inc.
MCG Capital Corporation
). All of these carry a Zacks Rank #2 (Buy).