On Monday, Oppenheimer adjusted its stance on WhiteHorse Finance (NASDAQ: NASDAQ:WHF), downgrading the stock from Outperform to Perform and lowering the price target to $12 from $14.
This decision came after the company reported a loss of $0.30 per share and a negative 9.0% return on equity (ROE) for the third quarter of 2024. WhiteHorse Finance's net losses totaled $16.0 million, or $0.69 per share, which were largely attributed to markdowns in investments such as American Craft, Honors Holdings, and Telestream.
The firm's analysis projects that WhiteHorse Finance will earn $0.71 and $1.46 per share in 2024 and 2025, respectively, with corresponding ROEs of 5.3% and 11.4%. The revised estimates incorporate the actual third-quarter results and the latest guidance from the company's management.
Despite these estimates, concerns were raised regarding the company's ability to cover its $1.54 per share dividend in 2025, although it has $26.8 million in spillover income to potentially offset this shortfall.
Oppenheimer's revised outlook suggests that WhiteHorse Finance is capable of achieving a 9% ROE. However, when compared to the estimated cost of equity, which stands at 10%, the fair value is calculated to be $11.50 per share. This valuation equates to 0.9 times the book value of the company.
The adjustment in the rating and price target reflects the firm's updated assessment of WhiteHorse Finance's performance and potential earnings.
In other recent news, WhiteHorse Finance's Q3 2024 earnings did not meet the expectations set by Raymond (NS:RYMD) James, leading to a downgrade in the company's rating from Outperform to Market Perform. The company's earnings and net asset value (NAV) per share fell short of projections, raising concerns about its credit outlook.
Analysts at Raymond James have also expressed doubts about the sustainability of the company's base dividend, currently set at $0.385 per share each quarter.
In the same vein, WhiteHorse Finance's Q2 2024 earnings disclosed a net investment income (NII) exceeding the company's base dividend, despite a slight dip in NAV per share. The company reported gross capital deployments totaling $55.8 million in Q2, with a fair value of the investment portfolio standing at $660 million.
On the heels of these developments, Raymond James has revised its previous projection of the base dividend's sustainability through their 2025 forecast period. However, they anticipate the dividend to be fully covered due to spillover income, which is substantial enough to maintain the dividend through at least the summer of 2025.
WhiteHorse Finance also reported refinancing activities expected to continue throughout the year, influenced by borrower-friendly market conditions and anticipated interest rate reductions by the Fed in Q4 2024. The company closed three new originations in Q3, totaling approximately $18 million, with more in the pipeline.
InvestingPro Insights
Recent data from InvestingPro adds context to Oppenheimer's downgrade of WhiteHorse Finance (NASDAQ: WHF). The company's market capitalization stands at $257.3 million, with a P/E ratio of 25.98, indicating a relatively high valuation compared to earnings. This aligns with an InvestingPro Tip suggesting that WHF's valuation implies a poor free cash flow yield.
Despite the challenges highlighted in Oppenheimer's report, WHF maintains a significant dividend yield of 16.12%, as of the latest data. An InvestingPro Tip notes that the company has maintained dividend payments for 13 consecutive years, which may be attractive to income-focused investors. However, this high yield should be considered alongside the analyst's concerns about dividend coverage in 2025.
The company's revenue for the last twelve months as of Q3 2024 was $97.44 million, with a concerning year-over-year decline of 5.91%. This negative growth trend is further emphasized by the quarterly revenue decline of 11.66% in Q3 2024, which supports Oppenheimer's cautious stance.
InvestingPro offers additional tips that could provide valuable insights for investors considering WHF. There are 6 more tips available on the InvestingPro platform, which could help in forming a more comprehensive view of the company's financial health and prospects.
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