Prospect Capital (NASDAQ:PSEC) Stock Sees Heavy Call Option Buying

Key Points

• Call-option activity surged: Traders bought 2,565 PSEC call options, 353% above the average volume of 566, indicating increased speculative interest but not necessarily a bullish forecast.
• Quarterly results were mixed: Earnings of $0.15 per share topped the $0.10 consensus, but revenue came in below estimates; the article also cites weaker investment income and a reported net loss. Prospect announced a $200 million share-repurchase program.
• Risks remain around the dividend and outlook: The stated 28.7% dividend yield comes with an 840% payout ratio, raising sustainability concerns. Analysts’ consensus rating is Sell, with an average price target of $2.00.

Prospect Capital Corporation (NASDAQ:PSEC - Get Free Report) was the recipient of some unusual options trading activity on Thursday. Stock traders bought 2,565 call options on the company. This represents an increase of 353% compared to the average volume of 566 call options.

Prospect Capital Price Performance

Shares of PSEC traded up $0.03 during mid-day trading on Thursday, hitting $1.47. 2,928,394 shares of the company traded hands, compared to its average volume of 5,098,063. Prospect Capital has a one year low of $1.40 and a one year high of $3.12. The company has a current ratio of 0.87, a quick ratio of 0.87 and a debt-to-equity ratio of 0.64. The business has a 50-day moving average of $1.93 and a 200 day moving average of $2.35. The stock has a market capitalization of $782.05 million, a price-to-earnings ratio of 29.10 and a beta of 0.84.

Prospect Capital (NASDAQ:PSEC - Get Free Report) last issued its quarterly earnings results on Wednesday, November 4th. The financial services provider reported $0.15 earnings per share for the quarter, beating analysts' consensus estimates of $0.10 by $0.05. Prospect Capital had a net margin of 19.33% and a return on equity of 12.15%. The business had revenue of $151.74 million during the quarter, compared to analyst estimates of $163.14 million. As a group, equities analysts expect that Prospect Capital will post 0.38 earnings per share for the current fiscal year.

Prospect Capital Dividend Announcement

The company also recently announced a monthly dividend, which will be paid on Wednesday, November 18th. Stockholders of record on Wednesday, October 28th will be given a dividend of $0.0350 per share. The ex-dividend date is Wednesday, October 28th. This represents a $0.42 dividend on an annualized basis and a dividend yield of 28.7%. Prospect Capital's payout ratio is presently 840.00%.

Insiders Place Their Bets

In other news, CEO John Barry. III acquired 1,217,105 shares of the company's stock in a transaction dated Friday, September 4th. The stock was bought at an average price of $2.24 per share, with a total value of $2,726,315.20. Following the completion of the acquisition, the chief executive officer owned 90,479,988 shares in the company, valued at approximately $202,675,173.12. This represents a 1.36% increase in their position. The acquisition was disclosed in a document filed with the SEC, which is available through this hyperlink. Corporate insiders own 25.94% of the company's stock.

Hedge Funds Weigh In On Prospect Capital

Hedge funds have recently added to or reduced their stakes in the company. Independent Financial Group LLC bought a new stake in Prospect Capital in the first quarter valued at about $8,644,000. Legal & General Group Plc bought a new position in Prospect Capital during the second quarter worth about $9,336,000. Private Management Group Inc. grew its position in shares of Prospect Capital by 51.7% during the 2nd quarter. Private Management Group Inc. now owns 20,534,804 shares of the financial services provider's stock worth $47,435,000 after buying an additional 6,999,513 shares during the period. Van ECK Associates Corp grew its position in shares of Prospect Capital by 32.7% during the 2nd quarter. Van ECK Associates Corp now owns 9,685,724 shares of the financial services provider's stock worth $22,374,000 after buying an additional 2,388,990 shares during the period. Finally, Concorde Asset Management LLC bought a new stake in shares of Prospect Capital in the 2nd quarter valued at about $838,000. Institutional investors own 9.06% of the company's stock.

Key Headlines Impacting Prospect Capital

Here are the key news stories impacting Prospect Capital this week:

• Positive Sentiment: PSEC reported $0.15 per share, above the $0.10 analyst consensus, and announced a $200 million common-share repurchase program. Repurchases could support per-share value, though the announcement does not establish how much the company will buy back. Prospect Capital results and repurchase program
• Neutral Sentiment: Call-option trading rose to 2,565 contracts, 353% above its average volume. This suggests increased speculative interest, but options activity alone does not reliably predict the stock’s direction.
• Negative Sentiment: Quarterly revenue of $151.7 million fell short of the $163.1 million consensus. Net investment income was $76.4 million, down from $79.4 million a year earlier, while NII per share declined to $0.15 from $0.17. The earnings beat therefore came alongside weaker underlying income. Prospect Capital earnings report
• Negative Sentiment: An Associated Press earnings snapshot reported a $21 million net loss, highlighting that the per-share earnings beat does not mean the company was profitable on a net basis. Fiscal Q1 earnings snapshot
• Negative Sentiment: A Seeking Alpha article raised concerns about PSEC’s high stated yield being supported by a shrinking portfolio, adding to questions about the sustainability of income and distributions. Analysis of Prospect Capital’s yield and portfolio

Analysts Set New Price Targets

A number of research firms recently commented on PSEC. Wall Street Zen lowered Prospect Capital from a "buy" rating to a "hold" rating in a research report on Saturday, August 22nd. Weiss Ratings lowered Prospect Capital from a "sell (d+)" rating to a "sell (d)" rating in a research note on Wednesday, August 26th. Finally, Zacks Research upgraded Prospect Capital to a "hold" rating in a report on Monday, October 5th. One analyst has rated the stock with a Hold rating and two have issued a Sell rating to the stock. According to data from MarketBeat, the stock presently has a consensus rating of "Sell" and an average target price of $2.00.

About Prospect Capital

Prospect Capital Corporation NASDAQ: PSEC is a business development company that provides financing and investment capital to middle-market companies. The company primarily invests in privately held businesses through first-lien and second-lien loans, mezzanine debt, and other debt securities, while also making equity and equity-related investments in selected companies.

Prospect Capital invests across a range of industries and has additional exposure to areas such as real estate, structured credit, and financial services.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.