Fifth Street Finance Corp. (FSC) Upgraded to Buy at National Securities
Fifth Street Finance Corp. (NASDAQ:FSC) was upgraded by stock analysts at National Securities from a “neutral” rating to a “buy” rating in a research report issued to clients and investors on Tuesday. The brokerage presently has a $7.00 price objective on the credit services provider’s stock, up from their prior price objective of $4.00. National Securities’ price objective suggests a potential upside of 27.74% from the stock’s previous close.
The analysts wrote, “• Fifth Street Asset Management (NASD: FSAM – NR – $4.20), the external manager of both FSC and Fifth Street Senior Floating Rate (NASD: FSFR – NR – $8.97) has agreed to be acquired by Oaktree Capital Group, LLC (NYSE: OAK – NR – $47.75). The transaction is expected to close in the quarter ended 12/31/17. While both boards have unanimously approved of the transaction, this is still subject to a shareholder vote. We think that the risk of shareholders voting “no” is very, very minimal and would be like a case of Stockholm Syndrome.
• FSAM has run both public BDCs in a manner that is nothing short of egregious, as we have stated with regards to FSC for quite some time now. Fees have been too high and detached from the severe underperformance of the companies; rather than a credit investor, FSAM has behaved as an asset gatherer to generate fees, as we see it.
• OAK will lower the base fee to 1.50% from 1.75% and lower the incentive fee on both income and capital gains to 17.5% from 20.0%. Additionally, OAK has $100 billion of AUM as of 3/31/17 and is not going to get rich off the BDCs (like some FSAM executives have) and has no incentive to run the BDCs in an asset gathering fashion, in our opinion.
• We expect significant multiple expansion as a result of getting rid of FSAM and all board members except for one and having a strong external manager in Oaktree. Accordingly, we are maintaining our fiscal 2017 NII/share estimate of $0.55 and are revising our fiscal 2018 NII/share estimate to $0.54 from $0.50.”
A number of other equities analysts have also recently commented on FSC. Zacks Investment Research raised shares of Fifth Street Finance Corp. from a “sell” rating to a “hold” rating in a research note on Wednesday, March 22nd. Raymond James Financial, Inc. reissued an “underperform” rating on shares of Fifth Street Finance Corp. in a research note on Thursday, March 30th. BMO Capital Markets reissued a “hold” rating and issued a $4.00 price objective on shares of Fifth Street Finance Corp. in a research note on Tuesday, April 11th. Keefe, Bruyette & Woods set a $5.00 price objective on shares of Fifth Street Finance Corp. and gave the stock a “hold” rating in a research note on Wednesday, May 10th. Finally, Deutsche Bank AG cut shares of Fifth Street Finance Corp. from a “buy” rating to a “hold” rating and dropped their price objective for the stock from $5.50 to $4.75 in a research note on Monday, May 15th. One investment analyst has rated the stock with a sell rating, four have given a hold rating and three have assigned a buy rating to the stock. Fifth Street Finance Corp. currently has an average rating of “Hold” and an average price target of $5.50.
Shares of Fifth Street Finance Corp. (NASDAQ:FSC) opened at 5.48 on Tuesday. Fifth Street Finance Corp. has a 12-month low of $3.90 and a 12-month high of $6.32. The stock’s 50 day moving average is $4.11 and its 200-day moving average is $4.70.
Fifth Street Finance Corp. (NASDAQ:FSC) last posted its earnings results on Wednesday, May 10th. The credit services provider reported $0.13 earnings per share for the quarter, missing the Thomson Reuters’ consensus estimate of $0.15 by $0.02. The company had revenue of $45.56 million for the quarter, compared to analysts’ expectations of $50.76 million. Fifth Street Finance Corp. had a negative net margin of 33.60% and a positive return on equity of 8.83%. On average, analysts predict that Fifth Street Finance Corp. will post $0.56 EPS for the current year.
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Several large investors have recently added to or reduced their stakes in the company. Global X Management Co. LLC raised its stake in Fifth Street Finance Corp. by 51.4% in the first quarter. Global X Management Co. LLC now owns 21,651 shares of the credit services provider’s stock valued at $100,000 after buying an additional 7,352 shares during the period. Prudential Financial Inc. bought a new stake in shares of Fifth Street Finance Corp. during the first quarter worth $109,000. Creative Planning raised its stake in shares of Fifth Street Finance Corp. by 66.9% in the second quarter. Creative Planning now owns 22,868 shares of the credit services provider’s stock worth $111,000 after buying an additional 9,163 shares during the last quarter. GAM Holding AG bought a new stake in shares of Fifth Street Finance Corp. during the third quarter worth $137,000. Finally, Geode Capital Management LLC bought a new stake in shares of Fifth Street Finance Corp. during the first quarter worth $126,000. Hedge funds and other institutional investors own 29.95% of the company’s stock.
About Fifth Street Finance Corp.
Fifth Street Finance Corp. is a specialty finance company. The Company is a closed-end, non-diversified management investment company. The Company acts as a business development company (BDC). The Company’s investment objective is to maximize its portfolio’s total return by generating current income from its debt investments, and capital appreciation from its equity investments.
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