Finian O’Shea, an analyst from investment bank Wells Fargo, has trimmed the price target on Prospect Capital Corporation (NASDAQ:PSEC) a day after the company’s CEO and founder, John F. Barry III, lashed out at him during a quarterly earnings call.
The analyst and CEO bickered on the company's earnings call on Thursday after O’Shea asked under what circumstances the company would force the conversion of some of its preferred stock into common shares. Barry responded that the firm has no reason to contemplate this.
“No, we’re not rushing to break the glass here. I’m just astonished by these questions,” Barry said during a heated exchange with the analyst. “Is the house on fire? Why are we even discussing this?”
Later in the exchange, Barry added, "By the way, why don't you do the world a favor and do a little research before you come on an earnings call with absurd questions like this? You don't even know what you're talking about."
O’Shea has now reduced Prospect Capital’s stock price target to $4.50 from $5.00 and retained the stock's Underweight rating. The analysts' rating is equivalent to a sell rating at other firms.
“Though management described this quarter's conversion rate as more one-off, we see risk of heavier dilution should market conditions change. PSEC's recent performance (with NAV down 18% since Dec. '21) and a downward pointing SOFR curve could put the dividend at risk, which at a ~14% yield is likely a major pillar of support to today's stock price. Full conversion today would impact NAV by another ~20%, we estimate,” O’Shea said in an analysis released on Thursday.
Prospect, on Wednesday, reported that its net investment income declined 8.7% to $102.9 million in the fourth fiscal quarter as compared to the same quarter last year. Its net asset value stood at $3.71 billion. It saw an increase in the weighted average cost of unsecured debt financing to 4.25%. It declared monthly common shareholder distributions of $0.06 per share for September and October.
Wells Fargo has also noted some changes on the asset side, including roughly flat non-accruals with the Strategic Materials exit at a realized loss.
“Near-term maturity Atlantis Health was kicked out a year (to May '25), Rosa Mexicano was extended two years (now Jun. '26) and Town&Country was extended from Feb '26 to Aug. '28, said O’Shea, adding, “The structured credit book was described as non-impactful to NAV, which would indicate an accelerated return of capital given the fair value drop was sharper than recent trends.”
Wells Fargo has also updated its net operating income (NOI) forecasts for Prospect Capital for fiscal years 2025 and 2026. The new estimates are set at $0.61 and $0.50 respectively, a decrease from the earlier predictions of $0.67 and $0.60, respectively.
"Our NOI estimates for fiscal '25 and '26 moved to $0.61 and $0.50, from $0.67 and $0.60, previously, primarily on a lower SOFR curve, and a higher share count through conversions of prefs / DRIP issuance. Our PT moves to $4.50 (from $5), which continues to reflect a 13% yield on forward NOI. We maintain our Underweight rating,” said the analyst.
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