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"My favorite line is that economists were created to make weather forecasters look good. A good dose of humility is always required."

David Jones

Prospect Capital Corporation (NASDAQ:PSEC) is a business development company that makes secured debt and equity investments in middle-market private companies and public micro-cap businesses. It is faring much better than many of its peers. Net income, sales and EBITDA have been trending upwards for the past few years. We like Prospect Capital Corporation for the following reasons:

  • A good yield of 11.1% and a strong five year dividend average of 12%.
  • Net income has increased from $35 million in 2009 to $118 million in 2011.
  • EBITDA has is up almost 200% from its 2009 levels of $40 million. In 2011 EBITDA came in at $118 million.
  • It has a sturdy five year sales growth of 41%.
  • It has a very strong quarterly earnings and revenue growth rate both of which are in excess of 100%.
  • It has a decent three year total return of 59%.
  • Sales have increased by $69 million from $100 million in 2009 to $169 million in 2011.
  • Annual EPS before NRI increased from $1.06 in 2007 to $1.10 in 2011.
  • A good interest coverage ratio of 7.61.
  • Short percentage of float is 10.2%; this makes it a good candidate for a short squeeze.
  • It sports a levered free cash flow of $112 million.
  • $100K invested for 7 years would have grown to $150K; if dividends were reinvested the rate of return would be far higher.

Company: Prospect Capital Corporation

Levered Free Cash Flow = 112.57M

Basic Key ratios

  1. Percentage Held by Insiders = 2.3
  2. Market Cap ($mil) = 1305

Growth

  1. Net Income ($mil) 12/2011 = 118
  2. Net Income ($mil) 12/2010 = 20
  3. Net Income ($mil) 12/2009 = 35
  4. 12 months Net Income this Quarterly/12 months Net Income 4Q's ago = 77.28
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 101.92
  1. EBITDA ($mil) 12/2011 = 118
  2. EBITDA ($mil) 12/2010 = 13
  3. EBITDA ($mil) 12/2009 = 40
  4. Net Income Reported Quarterly ($mil) = 64
  5. Annual Net Income this Yr/ Net Income last Yr = 502.6
  6. Cash Flow ($/share) 12/2011 = 0.71
  7. Cash Flow ($/share) 12/2010 = 0.77
  8. Cash Flow ($/share) 12/2009 = 1.37
  1. Sales ($mil) 12/2011 = 169
  2. Sales ($mil) 12/2010 = 114
  3. Sales ($mil) 12/2009 = 100
  1. Annual EPS before NRI 12/2007 = 1.06
  2. Annual EPS before NRI 12/2008 = 1.91
  3. Annual EPS before NRI 12/2009 = 1.87
  4. Annual EPS before NRI 12/2010 = 1.12
  5. Annual EPS before NRI 12/2011 = 1.1

Dividend history

  1. Dividend Yield = 11.10
  2. Dividend Yield 5 Year Average =12%
  3. Annual Dividend 12/2011 = 1.21
  4. Annual Dividend 12/2010 = 2.14
  5. Forward Yield = 11.37
  6. Dividend 5 year Growth =0.83%

Dividend sustainability

  1. Payout Ratio 06/2011 = 1.04
  2. Payout Ratio 5 Year Average 06/2011 = 1.05
  3. Change in Payout Ratio = -0.01

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -17.11
  2. EPS Growth Quarterly(1)/Q(-3) = 113.16
  3. ROE 5 Year Average 06/2011 = 10.67
  4. Return on Investment 06/2011 = 8.42
  5. Debt/Total Cap 5 Year Average 06/2011 = 5.32
  1. Current Ratio 06/2011 = 0.08
  2. Current Ratio 5 Year Average = 1.11
  3. Quick Ratio = 0.1
  4. Cash Ratio = 0.02
  5. Interest Coverage Quarterly = 7.61

Notes

Prospect Capital said it will pay $110.2 million in cash for the Flowood, Miss., company, and said First Tower shareholders will get 14.5 million shares of Prospect as part of the deal. That would give First Tower's shareholders an 11% stake in Prospect Capital. However, Prospect said it will have the option to pay cash instead of issuing the stock.

Related companies (Peer group analysis)

Kayne Anderson Energy Development Company (KED)

  1. Net income for the past three years
  2. Net Income 2009 = $15.3 million
  3. Net Income 2010 = $-66.8 million
  4. Net Income 2011 = $18.2 million
  1. Total cash flow from operating activities
  2. 2009 = $-85.4 million
  3. 2010 = $57.5 million
  4. 2011 = $-13.3 million

  1. Dividend yield 5 year average = 8.8%
  2. Dividend growth rate 5 year average = -3.52%
  3. 5 year sales growth= N/A
  1. Current Ratio = 3.55
  2. Quick Ratio = N/A
  3. Interest Coverage = 3.04
  4. Payout Ratio = 32

Medley Capital Corporation (MCC)

  1. Net income
  2. Net Income 2010 = $-92 thousand
  3. Net Income 2011 = $9.5 million
  1. Total cash flow from operating activities
  2. 2010 = $-35K
  3. 2011 = $- 104.7 million

  1. Dividend yield 5 year average = N/A
  2. Dividend growth rate 5 year average = N/A
  3. 5 year sales growth= N/A
  1. Current Ratio = 0.25
  2. Quick Ratio = N/A
  3. Interest Coverage = 18.2
  4. Payout Ratio = 78

TICC Capital Corp. (TICC)

  1. Net income for the past three years
  2. Net Income 2009 = $35.1 million
  3. Net Income 2010 = $63.9 million
  4. Net Income 2011 = $14.2 million
  1. Total cash flow from operating activities
  2. 2009 = $24.3 million
  3. 2010 = $18.7 million
  4. 2011 = $- 114.5 million

  1. Dividend yield 5 year average = 13%
  2. Dividend growth rate 5 year average = -6%
  3. 5 year sales growth= 19.12
  1. Current Ratio = 0.31
  2. Quick Ratio = 0.31
  3. Interest Coverage = 13.9
  4. Payout Ratio = 225

Tortoise Capital Resources Corp. (TTO)

  1. Net income for the past three years
  2. Net Income 2009 = $11K
  3. Net Income 2010 = $14.6 million
  4. Net Income 2011 = $2.9 million
  1. Total cash flow from operating activities
  2. 2009 = $6.03 million
  3. 2010 = $2.9 million
  4. 2011 = $2.7million

  1. Dividend yield 5 year average = 8.4
  2. Dividend growth rate 5 year average = -19%
  3. 5 year sales growth= N/A
  1. Current Ratio = 19.85
  2. Quick Ratio = 19.85
  3. Interest Coverage = 236
  4. Payout Ratio = 128

Conclusion

In our opinion, the markets are rather overbought and need to let out some steam. Prudent investors would do well to wait for a strong pullback before committing funds to this market. A pullback in the 7-12% ranges would qualify as a strong pull back.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.

Source: 12 Reasons To Think About Prospect Capital Corporation

Additional disclosure: EPS, Price, EPS surprise charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Consensus estimate analysis table sourced from reuters.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com.