On Feb 19, 2014, we issued an updated research report on American Capital, Ltd. ( ACAS ). The company recently reported dismal fourth-quarter 2013 results that reflected higher operating expenses and a declining top line. We believe a low interest-rate environment and regulatory issues may continue to pressure top-line growth in the upcoming quarters.
American Capital reported earnings of 14 cents per share, lagging the Zacks Consensus Estimate of 11 cents. Also, this was below 26 cents earned in the prior-year quarter. Net operating income for the quarter came in at $38 million, significantly down from $83 million reported in the prior-year quarter.
With this, the company missed the Zacks Consensus Estimate in all four quarters of 2013 by an average of 64.0%.
Total operating revenue stood at $118 million for the quarter, down 34% from the prior-year quarter. This was primarily due to lower interest and dividend income.
Though American Capital is focused on expense management, the quarter in review witnessed a 2% year-over-year increase in its operating expenses. This was primarily driven by elevated salaries, benefits and stock-based compensation.
Going forward, the high debt level may weigh on the company's financials. As of Dec 31, 2013, American Capital's total debt stood at $791 million.
Weak fundamentals and dismal results at American Capital triggered a downward revision in the Zacks Consensus Estimate, as analysts turned more bearish on the stock's future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate over the past 30 days. For 2014, it decreased 7.3% to $1.02 per share while it declined 28.4% to $1.01 for 2015.
American Capital currently carries a Zacks Rank #5 (Strong Sell).
Key Picks from the Sector
Some better-ranked stocks worth considering include Apollo Investment Corp. ( AINV ), Gladstone Investment Corp. ( GAIN ) and Horizon Technology Finance Corp. ( HRZN ). All these carry a Zacks Rank #2 (Buy).