Gladstone Investment Corp. Jumps After Earnings Beat, Analyst Upgrade

The private equity fund Gladstone Investment Corporation (NASDAQ: GAIN) stock is popping Wednesday after the company reported a big earnings beat. The third-quarter numbers prompted an upgrade by Ladenburg Thalmann. 

The Analyst

Ladenberg Thalmann analyst Mickey Schleien upgraded Gladstone stock from Neutral to Buy and set a $10.50 price target.

The Thesis

There was plenty to like about Gladstone’s quarter, Schleien said.

Gladstone's investment portfolio grew by 7 percent on the quarter and investment income jumped by 23 percent quarter-over-quarter. The board voted to maintain the 6.5-cent monthly dividend, which currently represents a 7.4-percent yield.

“Investment merits include rising NAV/sh, coverage of the regular dividend from NII, potential off-balance sheet success fees of 80 cents/share, spillover taxable income of 38 cents/share, minimal energy/commodity investments, no PIK income, meaningful equity stakes which provide enhanced control (e.g., this quarter's merger), good NII yield of almost 9 percent, low NPLs and a balance sheet oriented toward higher interest rates with almost all investments at variable rates and 60 percent of debt at fixed rates," the analyst said. 

Conversely, portfolio concentration, a historic tendency for dilutive offerings and the company’s legacy fee structure are all causes for concern and should be monitored closely, Schleien said. 

A booming economy is good news for Gladstone's buyout strategy, the analyst said. 

Price Action

Gladstone shares spiked 12.2 percent Wednesday following the earnings beat and are now trading above Schleien’s $10.50 target price. Gladstone shares are now up 17.2 percent in the past year.

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