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Assessing Prospect Capital’s Discounted Valuations


Sep. 5 2017, Updated 7:37 a.m. ET

Lower valuations

Wall Street analysts have given a one-year price target of $6.88 per share on Prospect Capital (PSEC) stock, which reflects a marginal rise of 0.29% from its current price. The fair value of Prospect’s total structured credit investments in fiscal 4Q17 stood at $1.079 billion, compared with $1.072 billion in fiscal 3Q17.

Prospect Capital has a one-year forward PE (price-to-earnings) ratio of 7.98x, compared with peer average one-year forward PE ratio of 10.45x.

The one-year forward PE ratio of Prospect’s peers are as follows:

  • BlackRock Capital Investment (BKCC): 9.93x
  • Ares Capital (ARCC): 11.80x
  • Apollo Investment (AINV): 9.62x

Prospect Capital has lower valuations because of the sequential fall it saw in its total originations in fiscal 4Q17. However, the company’s structured credit portfolio has been able to generate cumulative cash distributions of $939 million in fiscal 4Q17, compared with $857 million in fiscal 3Q17.

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Price-to-cash-flow ratio

On an LTM (last-12-month) basis, Prospect Capital (PSEC) has a PCF (price-to-cash-flow) ratio of 6.57x. The PCF ratios of other investment management companies (XLF) on an LTM basis are as follows:

  • BlackRock Capital Investment (BKCC): 4.68x
  • FS Investment (FSIC): 6.70x
  • Apollo Investment (AINV): 3.91x

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