Bain Capital Specialty Finance Matches EPS at $0.43, Misses Revenue

Bain Capital Specialty Finance (NYSE:BCSF) reported $0.43 in earnings per share for the quarter on Monday, exactly matching the consensus estimate of $0.43, according to Zacks. The number landed on target. The revenue line did not: the business development company booked $39.71 million for the quarter, falling well short of analyst estimates of $61.03 million.

The earnings release also disclosed the firm's core profitability metrics. Bain Capital Specialty Finance posted a net margin of 24.22 percent and a return on equity of 10.40 percent for the period.

How did the market greet the numbers?

BCSF opened at $11.05 on Tuesday, the session after the release. The stock carries a market capitalization of $716.75 million, a price-to-earnings ratio of 11.10 and a beta of 0.59, according to market data accompanying the report.

The trading picture shows a stock drifting below its longer-term trend. Key reference points:

• Fifty-day moving average: $10.98
• Two-hundred-day moving average: $12.38
• One-year low: $9.99
• One-year high: $14.70

On the balance sheet side, the company reports a current ratio of 7.20, a quick ratio of 7.20 and a debt-to-equity ratio of 1.39. The identical current and quick ratios point to a liquidity buffer with essentially no inventory drag. Simply put, the shares trade just above their fifty-day average but well below their two-hundred-day line.

What is happening with the dividend?

The company announced a quarterly dividend of $0.42 per share, payable on Tuesday, December 29th. Stockholders of record on Tuesday, December 15th will receive the payment, and the ex-dividend date is the same day, December 15th.

The payout annualizes to $1.68 per share, a dividend yield of 15.2 percent at current prices. That yield carries a catch: the dividend payout ratio stands at 169.70 percent, meaning distributions currently exceed earnings. The yield is generous; the coverage is not.

Where do analysts stand now?

Several brokerages adjusted their views on BCSF in recent months, and the drift has been toward caution:

• Noble Financial began coverage on Friday, September 18th with a "neutral" rating.
• Loop Capital set a $12.50 price objective on Friday, September 18th.
• Keefe, Bruyette & Woods downgraded the stock from "outperform" to "market perform" on Monday, August 17th, cutting its target from $15.00 to $13.00.
• Jefferies Financial Group set a $13.00 target price on Monday, August 17th.
• Zacks Research upgraded the shares from "strong sell" to "hold" on Tuesday, October 13th.

Four equities research analysts have rated the stock a Hold. Based on data from MarketBeat.com, BCSF carries an average rating of "Hold" and a consensus price target of $12.60 — roughly 14 percent above the Tuesday open.

What does the company actually do?

Bain Capital Specialty Finance, Inc. is a business development company that provides financing to middle-market companies. It primarily invests in privately negotiated debt, with an emphasis on senior secured loans, including first-lien and unitranche facilities. It may also hold second-lien debt and, to a lesser extent, equity securities.

The firm targets companies generally sponsored by private equity firms and operates across a range of industries.

The takeaway: earnings met the mark, revenue did not, and a 15.2 percent yield rides on a payout ratio that leaves little room for error.