Deployments to rise

Prospect Capital (PSEC) stock rose 3.0% over the past three months and 20.0% over the past year. The company is currently trading 5.0% below its 52-week high. It’s targeting higher deployment in the upcoming quarter as yields on debt offerings are expected to improve. However, it will have to keep leverage and capital position in a comfortable position in order to avoid a higher cost of capital.

In fiscal 1Q17, Prospect Capital saw net new originations of $232.8 million, reflecting an improved investment environment. Its interest income and other income are expected to rise in the upcoming quarters on new investments.

Prospect Capital’s Valuations: Fair amid Originations, Leverage

Prospect generated distributable income of $77.0 million, or $0.22, on a per-share basis. In fiscal 2016, its EPS (earnings per share) was $1.07, higher than its dividends per share of $1.

Prospect’s 12.0% dividend yield is the highest among its investment management peers. Here’s how some of its competitors’ dividend yields compare:

  • Ares Capital (ARCC): 9.2%
  • KKR & Co. (KKR): 8.0%
  • Apollo Investment (AINV): 10.0%

Together, these companies make up 4.5% of the PowerShares Global Listed Private Equity ETF (PSP).

Fair valuations

Prospect Capital is currently trading at 8.6x on a one-year forward earnings basis. Its peers are trading at an average of 8.8x. Prospect’s valuation gap has fallen over the last quarter due to a rise in its stock, mainly due to a stable operating performance. The company’s yields and originations stood strong in fiscal 1Q17, laying a foundation for future growth.

Prospect’s strategy of investing in multiple strategies and investment pipelines has enabled it to have higher yields with a diversified risk portfolio. The company’s major profitability drivers could be higher originations across its targeted asset classes and maintaining a prudent leverage and strong balance sheet.

For a related analysis, be sure to check out Market Realist’s Financials page.

Latest articles

Last week (ended August 16) was rough for Canopy Growth (WEED)(CGC) stock. It fell about 14% after the company's fiscal 2020 first-quarter earnings report.

Apple shares rose close to 3% in early hour trading on Monday. So, why is Apple stock trading higher? The market sentiment might have turned positive.

In April, Amazon announced its plan to transform its free two-day shipping program to a free one-day shipping program for its Prime customers.

Cannabis companies face regulatory challenges. Recently, CannTrust (CTST) didn't comply with Health Canada’s regulations.

China’s state media agency, Xinhua News Agency, reported on August 18 that police had seized a FedEx parcel containing a handgun.

As of August 17, Curaleaf Holdings (CURA) (CURLF) was trading at 9.00 Canadian dollars—a fall of 13.5% in August.