On Friday, JPMorgan adjusted its stance on Runway Growth Finance Corp. (NASDAQ:RWAY), downgrading the stock from Overweight to Neutral and lowering the price target to $12.50 from the previous $13.50. The revision follows Runway Growth's fourth-quarter 2023 earnings report, which showed net investment income (NII) per share of $0.45, falling short of the $0.49 expected by JPMorgan and consensus estimates. This shortfall was attributed to investment income that did not meet expectations.
The company's net asset value (NAV) experienced a sequential decrease of 4.1% during the quarter, largely due to realized losses totaling $17.2 million. These losses were primarily a result of the write-down of Runway Growth's debt investment in Pivot3. Additionally, net unrealized losses of $5.9 million were reported, mainly due to fair value adjustments across two equity and warrant investments in the portfolio.
Despite the downgrade, Runway Growth announced an increase in its quarterly dividend, declaring a total dividend of $0.47 for the first quarter of 2024, which is a one-cent rise from the fourth quarter of 2023. Post-quarter end, one investment was placed on non-accrual status, indicating concerns over its performance.
The firm noted that while Runway Growth remains a solid option for investors seeking late-stage venture debt exposure, the recent reduction in NAV is likely to constrain the company's ability to further narrow its discount to NAV within the investment horizon considered by JPMorgan.
JPMorgan also pointed out that Runway Growth's potential annualized total return to the December 2024 price target of $12.50 is projected to be 9%, which falls towards the lower to middle range across the coverage universe of JPMorgan.
InvestingPro Insights
Runway Growth Finance Corp. (NASDAQ:RWAY) has recently been the subject of a revised outlook from JPMorgan, and investors are keenly observing the company's performance metrics. According to InvestingPro data, RWAY currently holds a market capitalization of $546.88 million and an attractive P/E ratio of 7.97, suggesting that the company may be undervalued relative to its earnings. Despite the downgrade by JPMorgan, RWAY's stock price is trading near its 52-week high, at 98.25% of the peak, with the previous close at $13.35.
Moreover, RWAY has demonstrated a consistent return pattern, with a year-to-date price total return of 10.84%, and an even more impressive 1-year price total return of 17.77%. This performance is indicative of the company's resilience and potential for growth. Investors should also note the ex-date of the last dividend was on February 9, 2024, aligning with the company's announcement of an increased quarterly dividend, which is part of its three-year streak of raising dividends, as highlighted by one of the InvestingPro Tips.
However, not all indicators are positive. The InvestingPro Tips also point to concerns over RWAY's weak gross profit margins and a valuation that implies a poor free cash flow yield. These factors may warrant caution for potential investors. For those considering a deeper analysis, InvestingPro offers additional insights, including 4 more InvestingPro Tips for RWAY, which can be accessed through the platform.
To gain a comprehensive understanding of RWAY's financial health and make informed investment decisions, readers are encouraged to consider a yearly or biyearly Pro and Pro+ subscription with InvestingPro. Use the coupon code PRONEWS24 to receive an additional 10% off the subscription price and unlock the full range of InvestingPro Tips and metrics.
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