Wunderlich Initiates 'Innovative' Monroe Capital At Buy

May 28, 2015

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In a report published Thursday, Wunderlich analyst Merrill Ross initiated coverage of Monroe Capital Corp (NASDAQ: MRCC) with a Buy rating and $15.50 price target. The analyst expects the company to deliver consistent dividends, along with appreciation in its portfolio investments.

“Unlike other BDCs that invest in the more liquid middle market, MRCC is primarily focused on the lower middle market, and the sponsor was twice awarded Small Middle Markets Lender of the Year by Global M&A Network, an industry association,” Ross said.

The analyst expects a robust 13 percent value creation before realized and unrealized losses or gains for the company’s portfolio investment over the next 12 months, which would provide upside to the stock.

According to the Wunderlich report, “MRCC’s unitranche lending platform allows for the bifurcation of credits that result in a yield pickup without encumbering the balance sheet with incremental debt. MRCC has historically been granted equity in select portfolio companies with a zero cost basis; if the portfolio company prospers over time, that equity should increase in value and be reflected in MRCC’s NAV.”

The analyst also believes that the company’s credit quality is strong. “In addition to having more than adequate NII to cover distributions, MRCC has received warrants and equity with a zero cost basis in several of its portfolio companies. As or if these companies prosper, MRCC shareholders can reap the benefits,” Ross added.