On Mar 19, 2013, we upgraded
American Capital, Ltd.
) to Outperform from Neutral, based on the company's new
investments and reduction of debt.
Why the Upgrade?
American Capital reported fourth-quarter results on Feb 11.
Earnings per share came in at 26 cents, beating the Zacks
Consensus Estimate by a penny but significantly lower than the
prior-year quarter earnings of 67 cents.
Better-than-expected results were attributable to top-line growth
along with decreased operating expenses, reflecting prudent
expense management. Moreover, new investments and reduction of
debt were positives in the quarter. However, the low interest
environment during the quarter was a negative. Further, in the
past year, the company has reported an average surprise of 37.4%.
Estimates over the past 60 days have been on the rise with the
Zacks Consensus Estimate for 2013 going up 5% to $1.10 per share.
Similarly, the Zacks Consensus Estimate for 2014 advanced 2.0% to
$1.16 per share. With the Zacks Consensus Estimates for both the
years moving north, American Capital now has a Zacks Rank #1
Reasons for Positive Bias
American Capital's efforts to de-risk and de-leverage the balance
sheet are commendable. The company's restructuring initiatives
are also anticipated to enhance top-line growth as well as
Moreover, the company is focused on maximizing shareholder value
through accretive acquisitions, organic growth and also by making
new portfolio investments. Further, American Capital has a
competitive advantage over its peers given its ability to fund
the entire capital structure in middle-market transactions.
American Capital provides multi-currency funding with
underwriting platform globally, thereby driving growth for its
portfolio companies. Such benefits provided by the company compel
private equity clients to consider it as an investment partner,
which in turn, helps it diversify.
AMER CAP LTD (ACAS): Free Stock Analysis
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However, we remain concerned about the low interest rate
environment and global cues, which are likely to be headwinds in
the upcoming quarters.
Other Stocks That Warrant a Look
While we prefer American Capital, other Zacks Rank #1 stocks
worth a look are
Meta Financial Group, Inc.
Flagstar Bancorp Inc.
First Defiance Financial Corp.