Main Street Capital Has The Ingredients For Superior Economic Return, Says B Riley FBR

Main Street Capital Corporation MAIN has materially grown its net asset value and dividend, resulting in a higher return relative to all other business development company peers, according to B Riley FBR. 

The Analyst

Analyst Tim Hayes initiated coverage of Main Street Capital with a Buy rating and 12-month price target of $40 per share, suggesting 15-percent upside.

The Thesis

Main Street Capital's superior return is a function of many factors, and "highlights its ability to diligently underwrite investments, maintain strong credit quality and preserve NAV," Hayes said in a Tuesday note.

A company's economic return gives an idea about its true value creation, the analyst said. 

Main Street mainly invests in lower-middle-market companies and structures its debt investments with equity components, Hayes said. 

"Main Street prefers to take minority ownership positions, which is an attractive quality to management teams that would prefer to maintain control of the company, giving Main Street an advantage versus other lenders," Hayes said. 

B Riley FBR projects growth from Main Street's internally managed structure and capital-light channels. Given the company's strong and underlevered balance sheet, well-managed debt maturity schedule, investment-grade credit rating and equity ATM program, Hayes said it has "plenty of levers to pull."

Main Street shares warrant a significant premium valuation to peers that do not have the same type of embedded growth and track record of success, the analyst said. 

The Price Action

Main Street Capital shares were down about 1 percent over the past year through Tuesday.

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