This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Prospect Capital Price Target Cut to $11.50 From $13 on 'Uncertainty'

Stocks in this article: PSEC

NEW YORK ( TheStreet) -- Prospect Capital  (PSEC) saw its price target lowered by National Securities analyst Andrew Kerai Monday after he hosted investor meetings with Prospect CFO Brian Oswald and sensed renewed investor skepticism would be a problem for the stock.

Kerai's report was published shortly before the market closed Monday, but shares of Prospect still closed slightly higher on the day, finishing near their highs at $9.86. Prospect is one of the riskiest bets in a space referred to as business development companies, publicly traded lenders that target small to mid-sized companies, pay few if any taxes and distribute large dividends to investors.

Kerai left his "buy" recommendation on the stock but lowered his price target to $11.50 from $13 arguing an accounting dispute with the Securities and Exchange Commission will continue to weigh on the shares as "some investors now view the company with an elevated level of scrutiny."

Prospect drew the SEC's attention for treating equity investments in seven of the companies in its portfolio as debt. Thus, when it receives a distribution from those companies, Prospect classifies the distribution as interest income. If the investment is classified as equity, as the SEC believes it should be, the distribution would be considered dividend income only if the portfolio company earns enough to cover the dividend. If earnings are insufficient, it must be classified as a return of capital.

If the distribution is a return of capital rather than an outgrowth of earnings, Prospect's net investment income would decline, which would force management to return incentive fees it gets based on that metric.

Prospect said May 7 it expected the issue would be resolved within a month. KBW analyst Greg Kelly called that timetable "aggressive" and thinks it may take six to eight weeks -- suggesting it could drag into early July. However, he expects Prospect will eventually give in to the SEC and restate its earnings.

The dispute has spurred several class action lawsuits from Prospect Capital shareholders.

In Monday's report, Kerai urged Prospect to "simply restate prior earnings and apply the recommended accounting methodology going forward, to put the issue to rest."

He continues to believe the stock is undervalued and that resolving the dispute with the SEC would "provide support for the stock." Still, he added, "we no longer believe a one-year price target of $13 is realistic given the renewed uncertainty surrounding the company and its quality of earnings."

>>Read More:

Prospect Capital Shares May Rise Despite Accounting Games
This Housing Play May Be Overlooked

 

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs