Analyst Lowers Price Target for Prospect Capital

Finian O’Shea, an analyst from Wells Fargo, has reduced the price target on Prospect Capital Corporation (NASDAQ: PSEC) to $4.50 from $5.00 following a contentious earnings call with CEO John F. Barry III.

During the call, O’Shea questioned Barry about the potential conversion of preferred stock into common shares. Barry expressed disbelief and frustration at the inquiry, stating, “No, we’re not rushing to break the glass here. I’m just astonished by these questions. Is the house on fire? Why are we even discussing this?” He further criticized O’Shea’s research before the call, questioning the quality of his inquiries.

O’Shea maintained the stock’s Underweight rating, likening it to a sell rating at other firms. He cited the risk of dilution and ongoing market conditions impacting the company’s performance. In his analysis, he noted that Prospect’s net investment income had declined 8.7% to $102.9 million in the fourth fiscal quarter compared to the previous year and mentioned the company’s net asset value (NAV) of $3.71 billion. He also highlighted an increase in the weighted average cost of unsecured debt financing to 4.25% and noted that the quarterly dividend distributions are set at $0.06 per share for September and October.

O’Shea’s updated forecasts for net operating income (NOI) for the fiscal years 2025 and 2026 have also shifted to $0.61 and $0.50, down from $0.67 and $0.60, primarily due to a lower SOFR curve and higher share count from preferred stock conversions.

Wells Fargo noted that recent asset-related changes included near-term maturity adjustments and a non-impact on NAV from the structured credit book, indicating a possible accelerated return of capital.

Overall, O’Shea’s analysis suggests continued caution regarding Prospect Capital’s stock performance.