Balanced Risk-Reward for American Capital - Analyst Blog

On May 15, 2014, we issued an updated research report on American Capital, Ltd. ACAS. The company recently reported disappointing first-quarter 2014 results that reflected higher operating expenses and a declining top line. However, new investments and realization from portfolios were the positives.

Notably, in the quarter, the company made new investments worth $321 million in operating companies and recorded $442 million of cash proceeds from the realization of portfolio investments. We expect the company to continue to have strong investment opportunities this year as it is expected to utilize capital to invest in new companies and at the same time offer additional finance to the existing ones.

American Capital reported earnings of 2 cents per share, significantly lagging the Zacks Consensus Estimate of 22 cents. Also, this was below 14 cents earned in the previous quarter. Net operating income for the quarter came in at $5 million, substantially down from $38 million reported in the earlier quarter.

With this, the company missed the Zacks Consensus Estimate in the last four quarters by an average of 74.25%.

Going forward, the high debt level may weigh on the company's financials. As of Mar 31, 2014, American Capital's total debt was $790 million.

Following first-quarter 2014 results, the Zacks Consensus Estimate for 2014 decreased 7.6% to 85 cents per share while it increased 8.3% to $1.04 for 2015, over the last 30 days. American Capital currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked stocks worth considering include Fifth Street Senior Floating Rate Corp. FSFR, Great Southern Bancorp Inc. GSBC and Anchor Bancorp ANCB. All these carry a Zacks Rank #1 (Strong Buy).

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