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3 Stocks From Flourishing SBIC & Commercial Finance Industry

3 Stocks From Flourishing SBIC & Commercial Finance Industry

The Zacks SBIC & Commercial Finance industry will continue to bear the brunt of higher prepayments as interest rates rise. This is likely to keep hurting the industry players’ profitability to some extent.

Yet, higher interest rates, favorable regulatory changes and decent economic growth are expected to keep supporting the industry in the coming days. Robust asset quality continues to act as a major tailwind. Hence, a few industry players like Ares Capital Corporation ARCC, Main Street Capital Corporation MAIN and Hercules Capital, Inc. HTGC are likely to gain from these favorable developments.

About the Industry

The Zacks SBIC & Commercial Finance industry comprises companies that provide finance to small and mid-sized privately held developing firms. These firms are typically underserved by traditional banks and other lenders. Additionally, firms suffering from financial distress are the primary target clients of these lenders. The industry players provide customized financing solutions, ranging from senior-debt instruments to equity capital. This financing is provided for a change of ownership transactions, strategic buyouts, recapitalizations and growth initiatives in partnership with business owners, management teams and financial sponsors, among others. Some of the other products offered by the industry participants are mezzanine loans that typically pay high-interest rates and could be converted into equity in the target firm.

3 Major Factors Shaping the Future of SBIC & Commercial Finance Industry

Rising Rates: The Federal Reserve aggressively raised interest rates last year. Though the pace of rate hikes has slowed down, the central bank is expected to keep the rates higher till the “sticky” inflation comes down reasonably. While this has led to a spike in prepayments and refinancing before interest rates climb further, higher rates will benefit SBIC & Commercial Finance industry players. Also, the demand for products and services offered by these companies is likely to keep growing. Thus, the industry players are expected to witness a solid improvement in revenues going forward.

Solid Asset Quality: Following the COVID-19 outbreak and a subsequent halt in business activities in 2020, the majority of sectors wherein SBIC & Commercial Finance companies provide loans were hit hard. This raised fears of a deterioration of asset quality for industry players. Yet, support from the administration in the form of stimulus packages, extensive vaccination drives and the re-opening of businesses continues to support economic growth. These are likely to prevent a substantial rise in delinquency rates for the industry players, though inflation remains a major near-term headwind.

Regulatory Changes: In 2018, an amendment to the Investment Company Act of 1940 by the Small Business Credit Availability Act eased leverage limits for such companies, allowing them to increase their debt-to-equity leverage to 2:1 from 1:1. This helped these companies to reduce portfolio risks by investing in higher capital structures without foregoing current returns. Thus, the act provided extra funding flexibility to these companies and will continue offering more growth opportunities.

Zacks Industry Rank Indicates Brighter Prospects

The Zacks SBIC & Commercial Finance industry is a 36-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #38, which places it in the top 15{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of the Zacks-ranked industries outperform the bottom 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} by a factor of more than 2 to 1.

The industry’s positioning in the top 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of the Zacks-ranked industries is a result of an encouraging earnings outlook for the constituent companies in aggregate. Looking at aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s bottom-line growth potential. Over the past year, the industry’s earnings estimates for the current year have been revised 15.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} upward.

So, we are presenting a few stocks that are well-positioned to outperform the market based on a strong earnings outlook. Before that, let’s check out the industry’s recent stock market performance and valuation picture.

Industry Outperforms Sector and S&P 500

The Zacks SBIC & Commercial Finance industry has outperformed both the S&P 500 composite and its own sector over the past two years.

The stocks in this industry have collectively gained 5.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} over this period, while both the Zacks S&P 500 composite and Zacks Finance sector have risen 0.3{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}.

Two-Year Price Performance

Industry’s Current Valuation

One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing loan providers because of large variations in their earnings results from one quarter to the next.

The industry currently has a trailing 12-month P/TB of 0.86X. The highest level of 1.02X, lowest of 0.40X and a median of 0.90X have been recorded by the industry over the past five years. Also, the industry is trading at a significant discount compared with the market at large, as evident from the trailing 12-month P/TB for the S&P 500 composite of 9.26X, as the chart below shows.

Price-to-Tangible Book Ratio (TTM)

 

As finance stocks typically have a low P/TB ratio, comparing SBIC & commercial loan providers with the S&P 500 may not make sense to many investors. However, a comparison of the group’s P/TB ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TB of 4.78X is also way above the Zacks SBIC & Commercial Finance industry’s ratio, as the chart below shows.

Price-to-Tangible Book Ratio (TTM)

3 SBIC & Commercial Finance Stocks to Bet on

Ares Capital: This Zacks Rank #1 (Strong Buy) stock is a specialty finance firm that primarily invests in U.S. middle-market companies (firms having annual earnings in the range of $10-$250 million). Based in Maryland, ARCC offers customized financing solutions, ranging from senior-debt instruments to equity capital, with a focus on senior secured debt. Its investments in corporate borrowers generally range from $30 million to $500 million, while investment in power generation projects is between $10 million and $200 million.

You can see the complete list of today’s Zacks #1 Rank stocks here.

As of Dec 31, 2022, Ares Capital had total investments (fair value) of $21.78 billion, total assets of $22.4 billion and a net asset value of $18.40 per share.

Ares Capital has been witnessing growth in total investment income over the last few years. The company is expected to continue witnessing a rise in investment income in the quarters ahead, given the regulatory changes and rising demand for customized financing. Also, its investment commitments to new and existing portfolio companies have been steadily rising.

As of Dec 31, 2022, ARCC had debt of $12.21 billion and cash and cash equivalents (including restricted cash) of $303 million. The company has a revolving credit facility, allowing it to borrow up to $3.9 billion at any time, with a maturity date of Mar 31, 2027.

To maintain its RIC status, Ares Capital distributes approximately 90{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of its taxable income. In October 2022, it announced a dividend hike of 12{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}, marking the third such increase last year.

ARCC has a market cap of $10.3 billion. Over the past six months, the company’s shares have gained 5.2{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. The Zacks Consensus Estimate for earnings has been revised 4.4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} upward to $2.38 for 2023 over the past 30 days.

Price and Consensus: ARCC

 

Main Street Capital: This Zacks Rank #2 (Buy) private equity firm specializes in providing equity capital to lower-middle-market (LMM) companies. Main Street Capital also offers debt capital to middle-market companies. Based in Houston, TX, MAIN invests in LMM companies that generate annual revenues between $10 million and $150 million.

As of Sep 30, 2022, Main Street Capital had total investments (fair value) of $3.74 billion in 195 portfolio companies, which consisted of investments in the LMM portfolio, the middle-market portfolio and the private loan portfolio. As of the same date, MAIN’s net asset value (NAV) was $25.94 per share.

At the end of the September quarter, Main Street Capital had total liquidity of $420.2 million, which included $61.2 million in cash and cash equivalents and $359 million of unused capacity under its revolving credit facility. As of Sep 30, 2022, MAIN had total debt worth $1.48 billion, consisting of debentures and senior notes.

Since its October 2007 initial public offering (IPO), Main Street Capital has regularly raised its monthly dividends. Cumulatively, dividends paid or declared since IPO through the third quarter of 2022 stand at $35.80 per share.

Main Street Capital has a market cap of $3.1 billion. Over the past six months, MAIN’s stock has declined 7.4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. The Zacks Consensus Estimate for earnings has been revised 1.1{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} upward to $3.62 for 2023 over the past 30 days.

Price and Consensus: MAIN

 

Hercules Capital: Headquartered in Palo Alto, CA, HTGC is a specialty finance company that provides venture capital to technology and life science-related companies. Its investments are generally between $15.0 million and $40.0 million, and it expects these to generate revenues within at least two to four years.

Despite the tough macroeconomic scenario, Hercules Capital is expected to continue witnessing the growing demand for customized financing from private equity firms and venture capitalists. The company maintains a robust balance sheet position.

As of Dec 31, 2022, it had $606.8 million in liquidity, including $15.8 million in unrestricted cash and cash equivalents and $591 million in credit facilities. Also, HTGC has long-term issuer ratings of BBB- and Baa3 from Fitch Ratings and Moody’s Investors Service, respectively, along with a stable outlook, which renders it favorable access to the debt market. At the end of the fourth quarter of 2022, the weighted average cost of debt, comprising interest and fees, was 4.6{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}.

The fair value of Hercules Capital’s total investment portfolio was $2.96 billion as of Dec 31, 2022. Net asset value was $10.53 per share on the same date.

HTGC’s concentrated focus on its credit performance is encouraging. Driven by the rise in the demand for customized financing and a robust deal pipeline, total new commitments are expected to keep increasing.

Hercules Capital’s capital deployment plan seems impressive. It announced a 2.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} hike in the quarterly distribution in October 2022, following hikes of 6.1{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in July, 3.1{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in October 2021 and 3.2{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in May 2019. Management revisits its dividend policy at the end of every quarter and determines if any changes are required.

Hercules Capital has a market cap of $2.1 million. Shares of this Zacks Rank #2 company have rallied 5.2{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} over the past six months. The Zacks Consensus Estimate for 2023 earnings has been revised 2.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} north to $1.80 over the past month.

Price and Consensus: HTGC

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Commercial Sous Vide Machine Market to Notice Utmost Growth of USD 1,233.86 million by 2030, Size, Share, Trends, Key Drivers, Development Trends and Industry Growth Outlook

Commercial Sous Vide Machine Market to Notice Utmost Growth of USD 1,233.86 million by 2030, Size, Share, Trends, Key Drivers, Development Trends and Industry Growth Outlook
Data Bridge Market Research

Data Bridge Market Research

Data Bridge Market Research analyses that the global commercial sous vide machine market is expected to reach the value of USD 1,233.86 million by 2030, at a CAGR of 5.8{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} during the forecast period.

PARIS, Jan. 24, 2023 (GLOBE NEWSWIRE) — Data Bridge Market Research completed a qualitative study titled “Commercial Sous Vide Machine Market” with 100+ market data tables, pie charts, graphs, and figures spread across Pages and an easy-to-grasp full analysis. The superior Commercial Sous Vide Machine market report includes historic data, present market trends, environment, technological innovation, upcoming technologies, and the technical progress in the related industry. Businesses can utilize this market document to obtain productive ideas with which products can be made more effective and impressive in the competitive market. This market research report is a high-quality report having in-depth market research studies. In addition to detailing the competitive landscape of the key players, the Commercial Sous Vide Machine business report also offers a complete and distinct analysis of the market drivers and restraints, a detailed analysis of the market segmentation, key developments in the market, and details of research methodology.

Data Bridge Market Research analyses that the global commercial sous vide machine market is expected to reach a value of USD 1,233.86 million by 2030, at a CAGR of 5.8{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} during the forecast period.

Get a PDF Sample of the Commercial Sous Vide Machine Industry @ https://www.databridgemarketresearch.com/request-a-sample/?dbmr=global-commercial-sous-vide-machine-market

Sous vide, often known as low-temperature, long-time cooking is a cooking technique in which food is cooked in a water bath for a lengthier period of time than usual (typically one to seven hours, but occasionally up to 72 hours or more) at a precisely controlled temperature.

The temperature is substantially lower than what is commonly used to prepare food; for red meat, it is often between 55 and 60 °C (130 and 140 °F), for chicken, between 66 and 71 °C (150 and 160 °F), and for vegetables, it is higher. The main function of sous vide is to cook the dish evenly, ensuring that the inside is fully cooked while not overcooking the outside, and to keep the moisture locked.
Sous vide machines, associated with expert chefs, are gaining appeal because of their smart functions and promise of precise, hands-free cooking. These appliances, also known as immersion circulators and sous vide cookers, work by heating a water bath to the correct temperature and then maintaining it so the water can slowly cook sealed and submerged meals to the ideal doneness. The rise in the number of people opting for a healthy diet in developed countries is a key driver driving market expansion.

Fundamental Aim of Commercial Sous Vide Machine Market Report

In the Commercial Sous Vide Machine market, every company has goals, but this report focus in on the most important ones, allowing you to gain insight into the competition, the future of the market, potential new products, and other useful information that can boost your sales significantly.

The Commercial Sous Vide Machine Market is Dominated by Firms Such as

Download the Complete Research Study Here in PDF Format @ https://www.databridgemarketresearch.com/checkout/buy/enterprise/global-commercial-sous-vide-machine-market

OPPORTUNITY

Foods are vacuum-sealed in plastic bags, or glass jars, or reusable silicon bags for sous vide cooking, which uses carefully regulated heat to cook the food. Cooking durations are longer, and temperatures are lower. The end result is a dish that is evenly cooked throughout and preserves all of the moisture, nutrients, and flavours of the ingredients. The design and quality of the plastic pouch that the food is cooked in are essential for the success of sous vide. Vacuum packaging has developed throughout time, and today it serves more purposes than only prolonging shelf life and enhancing portion control. It is an innovative cooking method today. Ingredients are vacuum-sealed in a pouch for sous vide cooking. To achieve the intended outcome, these are cooked at a specified temperature. More and more renowned chefs are turning to this cooking method, and the number of people using it is rising. This method is one of the most significant culinary advancements of the present since it maintains meat and fish soft and succulent no matter how long they have been cooked. Vacuum sealing allows for efficient heat transfer from water and lengthens shelf life by preventing recontamination. The Aseptic packaging technology uses 30 percent less energy than canning and 80 percent less energy than freezing. Using our technology, healthy, nutritious and affordable ready-to-eat meals can be made and globally distributed.

Key Market Segments Covered in Commercial Sous Vide Machine Industry Research

Product

Capacity

Packaging

Application

End-use

Distribution channel

Key Growth Drivers:

The demand for sous vide devices has increased as a result of changing consumer habits and an increase in the number of working women. Working women only have a small amount of time for cooking. In order to cook meals more quickly than they could otherwise, they choose sous vide machines. When food is served sous vide way, it is more flavourful and delicious. Because the food simmers slowly in its juices, less salt and oil need to be added. No additional seasonings or sauces are required when serving sous vide food because it develops its juices and lets the product’s inherent flavors and colors show through. This is good for anyone seeking to eat fewer calories and is excellent for one’s general health.

Companies use various strategies to promote their products as recent ongoing trends, highly in-demand products, recent technology and various other concepts. A product launch strategy involves research, testing and actions from different departments to ensure customers buy a product. The market players in commercial sous vide manufacturing are constantly working towards new product launches in the market. The launch of new sous vide products helps to satisfy the preference of different consumers in the market. Launch strategies help in product launches, market understanding, trends analysis, and much more beneficial accepts that help industry experts to expand. An important part the launch plan is validating the product and its benefits quickly. This is done by using the Net Promoter Score (NPS), and the Customer Satisfaction Score (CSAT) can be corrupted when you get negative feedback from users who are not meant to test the first version of your product or feature. In this way, manufacturers consistently create new launch strategies, which help the company to grow. Continuous collaborations between companies, strategic alliances, funding and company’s expansion boost the company’s growth globally, which will ultimately boost the market growth.

Browse a Detailed Summary of the Research Report @ https://www.databridgemarketresearch.com/reports/global-commercial-sous-vide-machine-market

Commercial Sous Vide Machine Market Regional Analysis/Insights:

The countries covered in the commercial sous vide machine market report are U.S., Canada, Mexico, Germany, United Kingdom, Italy, France, Spain, Switzerland, Netherlands, Belgium, Russia, Denmark, Turkey, Rest of Europe, Japan, China, South Korea, India, Australia, Singapore, Thailand, Indonesia, Malaysia, Philippines, Rest of Asia-Pacific, South Africa, United Arab Emirates, Saudi Arabia, Kuwait, Oman, Rest of Middle East and Africa, Brazil, Argentina and Rest of South America.

North America region is expected to dominate the market due to large production, easy availability of products, and increased customers. In North America, the U.S. is expected to dominate the market due to the increase demand in the horeca and catering industry.

The country section of the report also provides individual market impacting factors and changes in market regulation that impact the current and future trends of the market. Data points like down-stream and upstream value chain analysis, technical trends and porter’s five forces analysis, case studies are some of the pointers used to forecast the market scenario for individual countries. Also, the presence and availability of Global brands and their challenges faced due to large or scarce competition from local and domestic brands, impact of domestic tariffs and trade routes are considered while providing forecast analysis of the country data.

The investment made in the study would provide you access to information such as:

  • Commercial Sous Vide Machine Industry [Global – Broken-down into regions]

  • Regional level split [North America, Europe, Asia Pacific, South America, Middle East & Africa]

  • Country wise Market Size Split [of important countries with major market share]

  • Market Share and Revenue/Sales by leading players

  • Market Trends – Emerging Technologies/products/start-ups, PESTEL Analysis, SWOT Analysis, Porter’s Five Forces, etc.

  • Market Size

  • Market Size by application/industry verticals

  • Market Projections/Forecast

Table of Contents:

  1. Introduction

  2. Market Segmentation

  3. Executive Summary

  4. Premium Insights

  5. Global Commercial Sous Vide Machine Market: Regulations

  6. Market Overview

  7. Global Commercial Sous Vide Machine Market, By Product

  8. Global Commercial Sous Vide Machine Market, By Capacity

  9. Global Commercial Sous Vide Machine Market, By Packaging

  10. Global Commercial Sous Vide Machine Market, By Application

  11. Global Commercial Sous Vide Machine Market, By End User

  12. Global Commercial Sous Vide Machine Market, By Distribution Channel

  13. Global Commercial Sous Vide Machine Market, By Region

  14. Global Commercial Sous Vide Machine Market: Company Landscape

  15. SWOT Analyses

  16. Company Profile

  17. Questionnaires

  18. Related Reports

Get the Full Table of Contents @ https://www.databridgemarketresearch.com/toc/?dbmr=global-commercial-sous-vide-machine-market

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Data Bridge Market Research has over 500 analysts working in different industries. We have catered more than 40{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of the fortune 500 companies globally and have a network of more than 5000+ clientele around the globe. Data Bridge adept in creating satisfied clients who reckon upon our services and rely on our hard work with certitude. We are content with our glorious 99.9 {1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} client satisfying rate.

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3 Stocks From the Promising SBIC & Commercial Finance Industry

3 Stocks From the Promising SBIC & Commercial Finance Industry

The Zacks SBIC & Commercial Finance industry will continue to bear the brunt of higher prepayments as interest rates rise. This will likely keep hurting the industry players’ profitability to some extent.

Yet, higher interest rates, favorable regulatory changes and decent economic growth are expected to keep supporting the industry in the coming days. Robust asset quality continues to act as a major tailwind. Hence, a few industry players like Ares Capital Corporation ARCC, Main Street Capital Corporation MAIN and Hercules Capital, Inc. HTGC are likely to gain from these favorable developments.

About the Industry

The Zacks SBIC & Commercial Finance industry comprises companies that provide finance to small and mid-sized privately-held developing firms. These firms are typically underserved by traditional banks and other lenders. Additionally, firms suffering from financial distress are the primary target clients of these lenders. The industry players provide customized financing solutions ranging from senior-debt instruments to equity capital. This financing is provided for change of ownership transactions, strategic buyouts, recapitalizations and growth initiatives in partnership with business owners, management teams and financial sponsors, among others. Some of the other products offered by the industry participants are mezzanine loans that typically pay high-interest rates and could be converted into equity in the target firm.

3 Major Factors Shaping the Future of SBIC & Commercial Finance Industry

Rising Rates: The Federal Reserve has been aggressively raising interest rates this year, and such moves are expected to continue in the coming days to control raging inflation numbers. While this has led to a spike in prepayments and refinancing before interest rates climb further, higher rates will benefit SBIC & Commercial Finance industry players. Also, given the decent economic growth, demand for products and services offered by these companies is likely to keep growing. Thus, the industry players are expected to witness a solid improvement in revenues going forward.

Solid Asset Quality: Following the coronavirus outbreak and subsequent halt in business activities in 2020, the majority of sectors wherein SBIC & Commercial Finance companies provide loans were hit hard. This raised fears of a deterioration of asset quality for industry players. Yet, support from the administration in the form of stimulus packages, extensive vaccination drives and re-opening of businesses continue to support economic growth. These are likely to prevent a substantial rise in delinquency rates for the industry players, though inflation remains a headwind.

Regulatory Changes: In 2018, an amendment to the Investment Company Act of 1940 by the Small Business Credit Availability Act eased the leverage limits for such companies, allowing them to increase their debt-to-equity leverage to 2:1 from 1:1. This helped these companies to reduce portfolio risk by investing in higher capital structures without foregoing current returns. In other words, the act provided extra funding flexibility to these companies and will continue offering more growth opportunities.

Zacks Industry Rank Indicates Brighter Prospects

The Zacks SBIC & Commercial Finance industry is a 36-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #14, which places it in the top 6{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of the Zacks-ranked industries outperform the bottom 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} by a factor of more than 2 to 1.

The industry’s positioning in the top 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of the Zacks-ranked industries is a result of encouraging earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s bottom-line growth potential. Over the past year, the industry’s earnings estimates for the current year have been revised 13.3{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} upward.

Hence, we are presenting a few stocks that are well-positioned to outperform the market based on a strong earnings outlook. Before that, let’s check out the industry’s recent stock market performance and valuation picture.

Industry Outperforms Sector and S&P 500

The Zacks SBIC & Commercial Finance industry has outperformed both the S&P 500 composite and its own sector over the past year.

While the stocks in this industry have collectively lost 11.5{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} over this period, the Zacks S&P 500 composite and Zacks Finance sector have declined 21.5{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} and 17.5{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}, respectively.

One-Year Price Performance

 

Industry’s Current Valuation

One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing loan providers because of large variations in their earnings results from one quarter to the next.

The industry currently has a trailing 12-month P/TB of 0.82X. The highest level of 1.03X, lowest of 0.40X, and a median of 0.92X have been recorded by the industry over the past five years. Also, the industry is trading at a significant discount compared with the market at large, as is evident from the trailing 12-month P/TB for the S&P 500 composite of 9.79X, as the chart below shows.

Price-to-Tangible Book Ratio (TTM)

 

As finance stocks typically have a low P/TB ratio, comparing SBIC & commercial loan providers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/TB ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TB of 4.37X is also way above the Zacks SBIC & Commercial Finance industry’s ratio, as the chart below shows.

Price-to-Tangible Book Ratio (TTM)

 

3 SBIC & Commercial Finance Stocks to Invest

Ares Capital: This Zacks Rank #2 (Buy) stock is a specialty finance firm that primarily invests in U.S. middle-market companies (firms having annual earnings in the range of $10-$250 million). Based in Maryland, ARCC offers customized financing solutions, ranging from senior-debt instruments to equity capital, with a focus on senior secured debt. Its investments in corporate borrowers generally range from $30 million to $500 million while investment in power generation projects is between $10 million and $200 million.

As of Sep 30, 2022, Ares Capital had total investments (fair value) of $21.34 billion, total assets of $22.04 billion and a net asset value (NAV) of $18.56 per share.

Ares Capital has been witnessing growth in total investment income over the last few years. The company is expected to continue witnessing a rise in investment income in the quarters ahead, given the regulatory changes and rising demand for customized financing. Also, its investment commitments to new and existing portfolio companies have been steadily rising.

As of Sep 30, 2022, ARCC had a debt of $11.82 billion and cash and cash equivalents (including restricted cash) of $257 million. The company has a revolving credit facility, allowing it to borrow up to $4.3 billion at any time, with a maturity date of Mar 31, 2027.

In order to maintain its RIC status, Ares Capital distributes approximately 90{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of its taxable income. In October 2022, it announced a dividend hike of 12{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}, marking the third such increase this year. Also, it has a share repurchase program worth $500 million in place, which will expire on Feb 15, 2023.

ARCC has a market cap of $9.7 billion. Over the past 12 months, the company’s shares have lost 7.2{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. The Zacks Consensus Estimate for earnings has been revised 5.2{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} upward to $2.04 for 2022 over the past 30 days.

Price and Consensus: ARCC

 

Main Street Capital: This Zacks Rank #1 (Strong Buy) private equity firm specializes in providing equity capital to lower middle-market (LMM) companies. Main Street Capital also offers debt capital to middle-market companies. Based in Houston, TX, MAIN invests in LMM companies that generate annual revenues between $10 million and $150 million.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

As of Sep 30, 2022, Main Street Capital had total investments (fair value) of $3.74 billion in 195 portfolio companies, which consisted of investments in the LMM portfolio, middle-market portfolio and private loan portfolio. As of the same date, MAIN’s NAV was $25.94 per share.

At the end of the September quarter, Main Street Capital had total liquidity of $420.2 million, which included $61.2 million in cash and cash equivalents and $359 million of unused capacity under its revolving credit facility. As of Sep 30, 2022, MAIN had total debt worth $1.48 billion, consisting of debentures and senior notes.

Since its October 2007 initial public offering (IPO), Main Street Capital has regularly raised its monthly dividends. Cumulatively dividends paid or declared since IPO through the third quarter of 2022 stand at $35.80 per share.

Main Street Capital has a market cap of $2.9 billion. Over the past 12 months, MAIN’s stock has declined 16.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. The Zacks Consensus Estimate for earnings has been revised 4.7{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} upward to $3.15 for 2022 over the past 30 days.

Price and Consensus: MAIN

 

Hercules Capital: Headquartered in Palo Alto, CA, HTGC is a specialty finance company that provides venture capital to technology and life science-related companies. Its investments are generally between $15.0 million and $40.0 million, and it expects these to generate revenues within at least two to four years.

Despite the tough macroeconomic scenario, Hercules Capital is expected to continue witnessing growing demand for customized financing from private equity firms and venture capitalists. The company maintains a robust balance sheet position.

As of Jun 30, 2022, it had $700.1 million in liquidity, including $57.1 million in unrestricted cash and cash equivalents and $643.4 million in credit facilities. Also, HTGC has long-term issuer ratings of BBB- and Baa3 from Fitch Ratings and Moody’s Investors Service, respectively, along with a stable outlook, which renders it favorable access to the debt market. At the end of the third quarter of 2022, the weighted average cost of debt, comprising interest and fees, was 4.4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}.

The fair value of Hercules Capital’s total investment portfolio was $2.83 billion as of Sep 30, 2022. NAV was $10.47 per share on the same date.

HTGC’s concentrated focus on its credit performance is encouraging. Driven by the rise in demand for customized financing and a robust deal pipeline, total new commitments are expected to keep increasing.

Hercules Capital’s capital deployment plan seems impressive. It announced a 2.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} hike in the quarterly distribution in October 2022, following hikes of 6.1{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in July, 3.1{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in October 2021 and  3.2{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in May 2019. Management revisits its dividend policy at the end of every quarter and determines if any changes are required.

Hercules Capital has a market cap of $1.8 million. Shares of this Zacks Rank #1 company have declined 18.2{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} over the past year. The Zacks Consensus Estimate for 2022 earnings has been revised 5.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} north to $1.43 over the past month.

Price and Consensus: HTGC

 

Zacks Names “Single Best Pick to Double”

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

It’s a little-known chemical company that’s up 65{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.

This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in little more than 9 months and NVIDIA which boomed +175.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in one year.

Free: See Our Top Stock And 4 Runners Up

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Ares Capital Corporation (ARCC): Free Stock Analysis Report
 
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