Hercules Capital (HTGC): Exploring Valuation After Moody’s Upgrades Credit Rating to Baa2

If you’ve been considering what to do with Hercules Capital (HTGC), you’re not alone. The company just caught investors’ eyes after Moody’s Investors Service bumped its credit and corporate ratings up to Baa2, shifting the outlook to stable. Moody’s pointed to Hercules Capital’s solid operating results, profitability, and the company’s strong footing in the capital markets. For a lender operating in today’s uncertain financial environment, this kind of independent validation can shift market sentiment and potentially improve Hercules Capital’s terms with lenders and investors.

While the recent Moody’s upgrade is the headline, it sits against a backdrop of a stock price that has delivered double-digit growth in the past year, with a 7% total return. Even though this year started softer, with shares down about 6% since January, momentum has quietly built in the past three months and the stock has advanced nearly 7%. Hercules Capital’s long-term shareholders have also seen substantial gains, and ongoing revenue and net income growth continue to add fuel to its investment case. The upcoming earnings release, with revenue expected to climb but EPS facing modest pressure, is the next catalyst many are watching.

So, after this upgrade and the recent uptick, is there still room for this stock to surprise on the upside, or have the markets already priced in Hercules Capital’s future growth story?

Most Popular Narrative: 9.7% Undervalued

The current narrative suggests Hercules Capital is trading below its estimated fair value, with analysts projecting continued growth driven by sector expansion and operational strength.

Ongoing successful capital raises, including the $350M investment-grade notes and an upsized credit facility, ensure low funding costs and ample liquidity. This enables Hercules to compete aggressively for quality deals and sustain strong portfolio growth, which may bolster future revenue.

Curious what is fueling these bullish forecasts? This valuation is built on bold predictions about rapid sector gains, improving margins, and robust operational efficiency. Want to uncover the numbers powering such a confident price target? Discover which major earnings and revenue assumptions are behind this compelling undervaluation story.

Result: Fair Value of $21.22 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, intensifying competition in venture lending, along with a heavy concentration in tech and life sciences, could threaten Hercules Capital’s growth outlook ahead.

Find out about the key risks to this Hercules Capital narrative.

Another View: A Check Against the SWS DCF Model

Taking a step back, our SWS DCF model also suggests Hercules Capital is trading at a value below its fair estimate. This observation reinforces the earlier thesis. However, it raises the question: can two methods both be correct, or is something being overlooked?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Hercules Capital for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Hercules Capital Narrative

If you want to dig deeper and reach your own conclusions, the tools are here. It only takes a few minutes to build your personal narrative: Do it your way.

A great starting point for your Hercules Capital research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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