Solar Capital Ltd. Stock Downgraded (SLRC)

NEW YORK ( TheStreet) -- Solar Capital (Nasdaq: SLRC) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 30.4%. Since the same quarter one year prior, revenues rose by 13.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • SLRC's debt-to-equity ratio is very low at 0.29 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • Net operating cash flow has increased to -$28.52 million or 45.95% when compared to the same quarter last year. Despite an increase in cash flow of 45.95%, SOLAR CAPITAL LTD is still growing at a significantly lower rate than the industry average of 386.16%.
  • SLRC has underperformed the S&P 500 Index, declining 13.35% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Capital Markets industry and the overall market, SOLAR CAPITAL LTD's return on equity is below that of both the industry average and the S&P 500.
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Solar Capital Ltd. is a business development company specializing in investments in leveraged companies, including middle market companies. The company has a P/E ratio of 13, equal to the average financial services industry P/E ratio and below the S&P 500 P/E ratio of 17.7. Solar has a market cap of $798.1 million and is part of the financial sector and financial services industry. Shares are down 1.3% year to date as of the close of trading on Wednesday.

You can view the full Solar Ratings Report or get investment ideas from our investment research center.
-- Written by a member of TheStreet Ratings Staff
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