On Tuesday, Oppenheimer initiated coverage on Sound Point Meridian Capital (NYSE: SPMC), a closed-end investment management company, with an Outperform rating and a price target of $21.00. The company, which primarily invests in collateralized loan obligations (CLO) equity and to a lesser extent in CLO mezzanine tranches, aims to generate high current income.
Sound Point Meridian Capital, which went public in June 2024, is currently trading around $20. Oppenheimer's coverage comes with a positive outlook on the company's earnings potential, projecting earnings per share (EPS) of $1.11 for 2024, $2.52 for 2025, and $2.54 for 2026. These figures correspond to return on equities (ROEs) of 11.2%, 12.8%, and 13.1% for each year, respectively.
The firm's analysis suggests that Sound Point Meridian Capital can achieve a 12.4% ROE. With an estimated cost of equity capital at 12%, the fair value of the company's shares is calculated to be $20.65, which is 1.03 times the book value. This valuation underpins the $21 price target set by Oppenheimer.
The analyst's comments highlight Sound Point Meridian Capital's strategy of paying out what it earns until a formal dividend policy is established. The company's focus on high current income and its performance since the IPO in June 2024 have positioned it favorably in the eyes of Oppenheimer, as reflected in the Outperform rating and the price target slightly above its current trading price.
InvestingPro Insights
As Sound Point Meridian Capital (NYSE: SPMC) garners an Outperform rating from Oppenheimer, current metrics from InvestingPro provide additional context for investors considering this investment management company. With a market capitalization of $401.2 million, SPMC demonstrates stability in its market position. The company's stock is trading close to its 52-week high, at 99.16% of this peak, indicating strong recent performance and possibly aligning with Oppenheimer's positive outlook.
InvestingPro Tips suggest that the stock is currently in overbought territory, which could be of interest to investors looking for entry and exit points. Additionally, SPMC's stock has shown low price volatility over the past months, a factor that might appeal to investors seeking less turbulent assets. However, potential investors should be aware of the company's weak gross profit margins and the valuation that implies a poor free cash flow yield, which could impact long-term profitability.
For those who prioritize income, it's notable that SPMC does not pay a dividend to shareholders, aligning with the company's strategy of paying out what it earns until a formal dividend policy is established. For investors seeking deeper analysis and more InvestingPro Tips, they can explore further by using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking access to a total of 6 additional tips for SPMC at https://www.investing.com/pro/SPMC.
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