National Securities Reiterates “Sell” Rating for Prospect Capital (PSEC)
National Securities reiterated their sell rating on shares of Prospect Capital (NASDAQ:PSEC) in a research note published on Monday morning. National Securities currently has a $4.00 price objective on the financial services provider’s stock.
“• For fiscal 3Q18, PSEC earned NII/share of $0.19, exceeding our estimate by two cents. The beat was largely driven by the $5.6 million of dividend income received from NPRC, a 100% owned subsidiary. We believe the dividend income was a result of NPRC selling assets. As a control investment, PSEC records this above the NII line instead of booking these as realized gains. Thus, NII is higher than it would be if PSEC had sold those assets outside of a controlled subsidiary.
• Brian Oswald, former CFO of Prospect, resigned abruptly on 4/4/18. The notice of Mr. Oswald’s departure came from an 8-K with no press release and no explanation given. On the earnings call, management stated that Mr. Oswald retired and wished him the best of luck. When we asked why they did not provide advance notice or at least provide a press release with reasoning, Mr. Barry stated that they “did not want to boast”. This comes as news to us as plenty of boasting was done the first twenty minutes on the call and additionally we are not ones to view letting your shareholders know why the CFO resigned as “boasting”.
• We also asked about Atlantis Healthcare, a dialysis clinic operator in Puerto Rico the company is a lender to. The company stated that Atlantis had power in all but one facility courtesy of backup generators. We then proceeded to ask about loss of patients from evacuation and the company said they were not concerned about the credit. What is interesting is that in July Triple S ceased using Atlantis’ services and in February there was a NY Times article detailing the evacuation of many dialysis patients from both Puerto Rico and the Caribbean.
• The company continues to hold Edmentum, Inc.’s junior PIK note on non-accrual. The same non-accrual is held by Oaktree Specialty Lending (NASD: OCSL – NEUTRAL – $4.87). PSEC had this non-accrual marked at 74% of cost as of 3/31/18 and Oaktree had this marked at zero.
• We are also skeptical of marks on Prospect’s CLO book, online loan portfolio, and First Tower as well.
• We are revising our fiscal 2018 NII/share estimate to $0.76 from $0.73 and our fiscal 2019 NII/share estimate to $0.65 from $0.66. ,” the firm’s analyst commented.
PSEC has been the topic of a number of other reports. BidaskClub upgraded Prospect Capital from a sell rating to a hold rating in a research note on Wednesday, March 21st. ValuEngine cut Prospect Capital from a buy rating to a hold rating in a research note on Wednesday, May 2nd. Finally, Zacks Investment Research cut Prospect Capital from a buy rating to a hold rating in a research note on Saturday, January 20th. One equities research analyst has rated the stock with a sell rating, five have assigned a hold rating and one has assigned a buy rating to the stock. The company currently has a consensus rating of Hold and a consensus target price of $6.17.
Prospect Capital (NASDAQ:PSEC) last issued its quarterly earnings data on Wednesday, May 9th. The financial services provider reported $0.19 earnings per share for the quarter, beating the consensus estimate of $0.18 by $0.01. Prospect Capital had a return on equity of 8.31% and a net margin of 36.39%. The business had revenue of $162.84 million for the quarter, compared to analysts’ expectations of $153.08 million. During the same period last year, the business earned $0.20 EPS. The business’s revenue was down 4.8% on a year-over-year basis. sell-side analysts forecast that Prospect Capital will post 0.75 earnings per share for the current year.
The firm also recently announced a monthly dividend, which will be paid on Thursday, September 20th. Stockholders of record on Friday, August 31st will be paid a dividend of $0.06 per share. This represents a $0.72 dividend on an annualized basis and a dividend yield of 10.88%. The ex-dividend date of this dividend is Thursday, August 30th. Prospect Capital’s payout ratio is 84.71%.
In other Prospect Capital news, CEO John F. Barry bought 63,295 shares of the stock in a transaction dated Monday, March 19th. The shares were bought at an average cost of $6.50 per share, for a total transaction of $411,417.50. Following the purchase, the chief executive officer now directly owns 34,351,066 shares of the company’s stock, valued at approximately $223,281,929. The purchase was disclosed in a document filed with the SEC, which can be accessed through this link. Also, insider John F. Barry bought 4,483 shares of the stock in a transaction dated Wednesday, March 21st. The shares were acquired at an average price of $6.50 per share, for a total transaction of $29,139.50. Following the completion of the purchase, the insider now directly owns 34,413,790 shares in the company, valued at $223,689,635. The disclosure for this purchase can be found here. Insiders have bought a total of 487,692 shares of company stock worth $3,213,776 over the last quarter. Company insiders own 7.10% of the company’s stock.
Institutional investors and hedge funds have recently made changes to their positions in the stock. Wesbanco Bank Inc. purchased a new stake in Prospect Capital in the 4th quarter worth about $107,000. Kovack Advisors Inc. purchased a new stake in Prospect Capital in the 4th quarter worth about $111,000. Prime Capital Investment Advisors LLC purchased a new stake in Prospect Capital in the 4th quarter worth about $130,000. Financial Gravity Companies Inc. purchased a new stake in Prospect Capital in the 4th quarter worth about $150,000. Finally, Alpha Cubed Investments LLC purchased a new stake in Prospect Capital in the 4th quarter worth about $153,000. 14.10% of the stock is owned by institutional investors.
About Prospect Capital
Prospect Capital Corporation is a financial services company. The Company primarily lends to and invests in middle market privately held companies. The Company is a closed-end investment company. Its investment objective is to generate both current income and long-term capital appreciation through debt and equity investments.
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