TCP Capital Initiated by DA Davidson at Buy Rating, $18/Share Price Target

TCP Capital (TCPC) received a buy investment rating from DA Davidson, which said it views the investment-management company’s stock “as deserving a premium valuation on its consistent record of disciplined growth and in covering its dividend” with earnings per share.

The firm set a price target on the stock of $18 per share, above the stock’s Wednesday closing price of $15.89 as well as its 52-week high of $17.47.

In a note to clients, DA Davidson described TCP Capital as a specialty finance company structured as a business-development company that is a “pass-through vehicle,” noting this means it is required to pay at least 90% of investment company taxable income as dividends to avoid corporate-level tax. The firm highlighted that the company’s portfolio as of June 30 included positions in 94 companies with a weighted average interest rate on the portfolio of 11.1% and a net asset value of $15.04 per share.

DA Davidson said it expects TCPC “can sustain its current $0.36 per share quarterly dividend with normalized net investment income per share (EPS) of $0.38-$0.39 into 2018, as opportunistic investment growth is mitigated by normal dispositions (or prepayments), extra shares outstanding, and higher interest expense.”

The firm highlighted that in Q2 and the year to date, TCP Capital had record originations while total investment income was up from the year-earlier period and above analysts’ expectations. Its Q2 EPS also rose from the year-earlier period and topped the Street view, “as the prepayment fees drove revenues and expenses remained well controlled,” DA Davidson noted.

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