On Wednesday, shares are declining 0.07% to $13.54.
While analyst believe the contemplated spin-off of the company's lending assets has the potential to unlock shareholder value, their rating is based on the need for additional clarity surrounding expenses, operating margins, and earnings power of the post-spin operating entities, according to the analyst note.
The company said on November 2014 that it plans to spin off a separate business development company (BDC), which will be called American Capital Income. This is expected to have $4 billion of equity capital.
While more clarity is needed for the spin-off plan, analysts view American Capital's core fundamentals as being good, with a strong balance sheet.
American Capital is an equity and venture capital firm.
Separately, TheStreet Ratings team rates AMERICAN CAPITAL LTD as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate AMERICAN CAPITAL LTD (ACAS) a HOLD. The primary factors that have impacted our rating are mixed, some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- ACAS's very impressive revenue growth greatly exceeded the industry average of 5.9%. Since the same quarter one year prior, revenues leaped by 83.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The gross profit margin for AMERICAN CAPITAL LTD is rather high; currently it is at 65.58%. It has increased significantly from the same period last year. Despite the strong results of the gross profit margin, ACAS's net profit margin of 9.74% significantly trails the industry average.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Capital Markets industry and the overall market, AMERICAN CAPITAL LTD's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$12.00 million or 250.00% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Capital Markets industry. The net income has significantly decreased by 78.6% when compared to the same quarter one year ago, falling from $70.00 million to $15.00 million.
- You can view the full analysis from the report here: ACAS Ratings Report