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 increase in net income, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and disappointing return on equity.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 29.7% when compared to the same quarter one year prior, rising from $12.38 million to $16.06 million.
  • SLRC's debt-to-equity ratio is very low at 0.28 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • 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. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, SOLAR CAPITAL LTD has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • Net operating cash flow has significantly decreased to -$44.40 million or 180.45% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

Solar Capital Ltd. is a business development company specializing in investments in leveraged middle market companies. The company has a P/E ratio of 13.2, above the average financial services industry P/E ratio of 13.1 and below the S&P 500 P/E ratio of 17.7. Solar has a market cap of $817.4 million and is part of the financial sector and financial services industry. Shares are up 3.8% year to date as of the close of trading on Tuesday.

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

TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.
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