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Analyst Actions: FS Investment Initiated at Neutral by Janney With Price Target at $10/Share

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FS Investment ( FSIC ) received initiated coverage Tuesday from Janney Montgomery Scott with an investment rating of neutral and a price target of $10 per share.

The price target on the business-development company's stock is slightly below its Monday closing price of $10.35 as well as its 52-week high hit last week at $10.50. Janney said it arrived at the price target because it believes the company can generate a 10% return on equity with a cost of capital of 9.5%. It also noted the target is in line with book value of $9.42 per share.

The firm noted that since its initial public offering in April 2014, FS Investment has had an average return on equity of 6.3%, below its cost of capital of 9.5%, but the average for the period from the end of 2009 through the end of 2015 is higher at about 8.8%. It also noted if the performance in 2009 is included--FS Investment generated a 33% return on equity that year as management was able to purchase loans at a discount during the financial crisis--then the average would rise to 12%.

Janney also highlighted that FS Investment is likely to benefit if interest rates rise. Its leverage is currently 76%, which is in line with management's target, and with 95% of its debt in fixed-rate borrowings, Janney is estimating that FS Investment's earnings per share would likely rise 27% if the London interbank offered rate rose by 300 basis points.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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