On Nov 19, 2013, we reiterated our long-term Neutral
Hercules Technology Growth Capital, Inc.
). Our decision was based on the company's improved capital
deployment activities. However, rise in operating expenses and
high concentration risks remain causes of concern.
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Why the Neutral Stance?
Hercules's third-quarter 2013 distributable net operating income
(DNOI) surpassed the Zacks Consensus Estimate by about 46%.
Better-than-expected results were largely driven by rise in total
investment income, partially offset by higher expenses.
Additionally, the Zacks Consensus Estimate advanced 7.0% to $1.23
per share over the last 30 days. However, for 2014, the Zacks
Consensus Estimate dropped by a penny to $1.26 per share over the
same time frame. Hence, Hercules currently has a Zacks Rank #3
Hercules' capital deployment activities have been impressive.
Earlier this month, the company increased its quarterly cash
dividend by 10.7% to 31 cents per share. This was the fourth time
the payout witnessed a hike this year.
On the flip side, higher operating expenses are a concern for
Hercules. Costs are expected to persistently increase in the
coming quarters due to the company's expansion of operations in
Virginia and California as well the opening of an office in New
Moreover, Hercules' investment activities are primarily
concentrated in the U.S. based companies. Though the American
economy is recovering, an uncertain interest-rate environment and
regulatory constraints may lead to increased costs of funding.
Other Banks to Consider
Some other financial stocks worth considering include
Ares Capital Corporation
BlackRock Kelso Capital Corporation
Gladstone Investment Corporatio
). All of these stocks carry a Zacks Rank #2 (Buy).