On Wednesday, TCP Capital Corp. (NASDAQ:TCPC) received a downgrade in its stock rating by Oppenheimer from Outperform to Perform, accompanied by a reduction in the price target to $11.00 from the previous $13.00. The revision comes after the investment firm reported a fourth-quarter loss and a reduction in its return on equity (ROE).
In the final quarter of 2023, TCP Capital experienced a loss of $0.23 per share, which translated into a -7.4% ROE. The company faced net losses amounting to $38.4 million, or $0.67 per share. These losses were largely attributed to specific credit impairments on investments in companies such as Edmentum, Thras.io, and Aventiv Technologies (Securus).
For the full year of 2023, TCP Capital managed to earn $0.67 per share, resulting in an ROE of 5.4%. Oppenheimer's analysis projects that BlackRock (NYSE:BLK), another entity in the sector, is expected to earn $1.71 per share in 2024 and $1.61 per share in 2025, with ROEs of 14.2% and 13.0% respectively, before accounting for credit losses. These estimates are based on updated guidance from management.
The analyst's forecasts suggest that TCP Capital's net investment income (NII) will be sufficient to cover the annual dividend of $1.36 per share for both 2024 and 2025. Nonetheless, the expected ROE for TCP Capital has been adjusted to 9%, which is slightly higher than its ROE since the initial public offering (IPO). This adjustment has influenced the reduction in the fair value estimate, leading to a new price target of $11.00 per share.
At the time of the rating change, TCP Capital's shares were trading at $10.55. The new Perform rating indicates a neutral stance on the stock, suggesting that the analyst does not foresee significant price movement in the near term.
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