Hercules Capital (HTGC) Following Its Note Offering Has Valuation Back In Focus

Hercules Capital (HTGC) has drawn fresh attention after announcing and completing a fixed income offering of 6.300% notes due July 24, 2031, raising roughly $321.3 million in proceeds before expenses.

See our latest analysis for Hercules Capital.

Against the backdrop of this new 6.300% note, Hercules Capital’s share price has recently picked up some short-term momentum, with a 30-day share price return of 4.6% and a 90-day gain of 3.8%. This comes even though the year-to-date share price return is down 15.5% and the 1-year total shareholder return has declined 8.5%. Over longer horizons, the 3-year and 5-year total shareholder returns of 32.9% and 60.7% respectively suggest that earlier shareholders have still seen substantial value over time.

If this kind of fixed income activity has you thinking about where else capital might be working hard in the market, it can be helpful to look beyond a single stock and use tools that surface other opportunities such as 18 top founder-led companies

Hercules Capital has built a niche as a lender to venture backed businesses, but a strong business and a freshly issued 6.300% note do not automatically mean the stock is attractively priced today.

Most Popular Narrative: 17.7% Undervalued

Compared with Hercules Capital’s last close at $15.93, the most followed narrative points to a fair value of $19.36, implying meaningful upside in that framework.

The analysts have a consensus price target of $19.36 for Hercules Capital based on their expectations of its future earnings growth, profit margins and other risk factors.

However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.0, and the most bearish reporting a price target of just $15.0.

Read the complete narrative.

What actually underpins that higher fair value is a specific earnings path, a particular revenue growth glide path, and a tighter margin profile. The narrative also leans on a defined valuation multiple that sits below the wider industry. It may be useful to understand which assumptions have to hold for Hercules Capital to line up with that price.

Result: Fair Value of $19.36 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, Hercules Capital still faces real pressure if venture lending competition squeezes yields, or if concentrated exposure to technology and life sciences translates into outsized credit losses.

Find out about the key risks to this Hercules Capital narrative.

Next Steps

With Hercules Capital showing both areas of concern and reasons for optimism, it may be useful to review the situation promptly and test the numbers yourself against the 4 key rewards and 2 important warning signs

Looking for more investment ideas beyond Hercules Capital?

If Hercules Capital has sharpened your focus on where capital can work harder, do not stop here. The market holds plenty of other potentially interesting opportunities.

• Spot opportunities with attractive valuations by reviewing companies highlighted in the 47 high quality undervalued stocks before prices shift away from your comfort zone.
• Strengthen your income focus by scanning for companies featured as 7 dividend fortresses while yields and payout histories still look compelling to you.
• Prioritise resilience by checking out stocks identified in the 81 resilient stocks with low risk scores so potential downside does not catch you off guard.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com