Analysts Debate Buying The Dip In Hercules Capital Following CEO's Involvement In College Bribery Scandal

March 13, 2019 10:58 am
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Hercules Capital Inc (NYSE:HTGC) investors were blindsided Tuesday when the stock dropped more than 8 percent after CEO Manuel Henriquez was among dozens charged in a college admissions bribery scheme.

On Wednesday, Henriquez announced he is stepping down as CEO of Hercules, and investors need to decide whether or not Henriquez’s involvement in the scheme is reason to sell their shares.

Knee-Jerk Reaction

Wells Fargo analyst Finian O'Shea said the market’s knee-jerk reaction to the news was too bearish. O’Shea said he wouldn’t be surprised to see the selling continue as the story plays out, but investors should be buying the dip.

“While we are lowering our price target to reflect idiosyncratic risk, we would advise investors to lean in as fears of catastrophe are overblown,” he wrote in a note. He said Henriquez's decision to step down was not a surprise, but the company (and its stock) appear not involved in the scheme in any capacity.

Wells Fargo reiterated its Outperform rating but lowered its price target from $14 to $12.15.

Face Of The Company

Keefe, Bruyette & Woods analyst Ryan Lynch said investors may want to step to the sidelines on Hercules stock while the headline risk persists. Lynch said Henriquez was not just the CEO of Hercules, but also the founder and the “face” of the company, and his involvement with the scandal has been damaging to the company’s reputation.

“We believe Mr. Henriquez’s reputation and HTGC’s track record are a large reason for the stock historically trading at a meaningful premium to book value and the BDC sector,” Lynch wrote.

Lynch said Hercules is at risk of losing its premium valuation now that Henriquez is& out of the picture. Keefe, Bruyette & Woods downgraded Hercules stock from Outperform to Market Perform and lowered its price target from $14 to $11.50.

Hercules stock traded around $12.16 per share Wednesday morning.

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