Oppenheimer downgrades Stellus Capital to Perform, lowers price target to $15

As previously reported, Oppenheimer analyst Mitchel Penn downgraded Stellus Capital to Perform from Outperform with a price target of $15, down from $16. In Q2, Stellus Capital earned 17c/share, equating to a 5.0% ROE as it generated net losses of $6.6M, or $0.31/share, primarily from credit-specific marks. The firm estimates that the company will earn $1.37 and $1.82 per share in 2023 and 2024, respectively, for ROEs of 9.8% and 12.8%. In both years, net interest income will likely cover the $1.60/share core dividend, it adds. Oppenheimer is also increasing its equity discount rate 75 bps to 10.5% to reflect increased credit risk.