Further Upside Looks Limited For These 3 BDCs

Baird has downgraded business development companies Fidus Investment Corp FDUS, Monroe Capital Corp MRCC and Main Street Capital Corporation MAIN to Neutral from Outperform, saying risk/reward in these stocks appears balanced at current valuations.

Instead, the brokerage recommends OFS Capital Corp OFS for fresh money.

“We would continue to maintain positions given attractive dividend yields but further price appreciation appears limited,” analyst Bryce Rowe wrote in a note.

For Fidus, Rowe sees limited upside to $17 target price, which suggests shares should trade at a 10 percent premium to NAV/share compared to its current 7 percent premium. The analyst trimmed his 2017 NII/share estimate to $1.49 from $1.61 to reflect from the December issuance of 3.2 million shares.

In addition, the analyst has a $16 price target on Monroe, with 2017 NII/share estimate remaining at $1.44. That said, Rowe believes consensus 2017 NII/share of $1.61 could prove high if dividend income from Rockdale Blackhawk declines.

Also, Rowe said the $37 target price on Main Street suggests the stock is trading around 170 percent of NAV/share. Longer term, the analyst believes Main Street could trade at or above 200 percent of NAV/share given its ability to generate an average return on equity about 15 percent across a full market cycle.

At Last Check

• Fidus shares were down 3.72 percent at $16.03.
• Main Street was down 1.11 percent at $36.42.
• Monroe was down 1.99 percent at $15.46.
• OFS Capital was flat at $13.98.