FBR Keeps Outperform On Prospect Capital, Sees 60% Upside

FBR & Co. analysts Christopher Nolan and Matthew Brotman reiterated an Outperform rating and $9.00 price target on shares of Prospect Capital Corporation (NASDAQ: PSEC) on Wednesday, after the company beat earnings and revenue estimates for its second quarter of fiscal year 2016.

EPS of $0.28 came in above FBR's estimate of $0.26, mainly on the back of "increased dividend income from the control portfolio aided by increased investment yields and deal fees and flat operating expenses relative to last quarter." In addition, online peer-to-peer lending is witnessing robust growth, and accounted for 40 percent of the quarter's loan originations.

Related Link: What's Going On With Prospect Capital?

Nonetheless, NAV per share fell by $0.52 over the quarter, primarily driven by depreciation charges in the CLO book, which was in turn driven by a systemic widening of credit spreads. Prospect Capital's reported asset quality for its CLO book remains better than the benchmark established by its peers, and management pointed out that, as far as they are aware of, there is no regulatory examination of the company's investment marks.

Also positive was the low exposure to energy-related investments, the report continued.

Going forward, Nolan and Brotman envision further depreciation charges, but believe they are already priced into the stock. Moreover, they think "the dividend is secure and PSEC’s 17% yield is attractive." Consequently, they reiterated and Outperform rating and $9 price target.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.