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On Monday, Lucid (NASDAQ:LCID) Capital Markets analyst Erik Zwick upgraded Runway Growth Finance Corp. (NASDAQ:RWAY) stock rating from Neutral to Buy, setting a new price target of $12.00. The revised outlook reflects a more positive assessment of the company’s shares following the resolution of two out of three concerns previously outlined by the analyst. Currently trading at $10.59 with a market capitalization of $395.5 million, RWAY has received a "GOOD" overall financial health score according to InvestingPro analysis.
Zwick noted that when Lucid Capital Markets initiated coverage of RWAY in November 2024, their Neutral rating was influenced by three main issues: elevated nonaccruals, asset sensitivity and the outlook for additional federal funds rate cuts, and the overhang of a large shareholder selling shares periodically. With two of these issues now posing less of a threat and the potential for the third to be resolved, the firm has adopted a more constructive view on RWAY’s stock. InvestingPro data reveals that management has been actively buying back shares, potentially helping to offset any selling pressure.
Runway Growth Finance Corp. is recognized for its unique lending strategy to late-venture, early-growth stage companies, which sets it apart from many Business Development Company (BDC) peers. Zwick highlighted the company’s strong liquidity and dividend coverage, as well as conservative underwriting practices, as factors that position it to generate attractive returns throughout various stages of the business cycle.
At present, RWAY stock is trading at 76% of its net asset value (NAV), which is considered a discount compared to the stock’s long-term average of 87% and the median of its peers at 88%. This valuation led Lucid Capital Markets to view the shares as attractively priced. The stock currently trades at a P/E ratio of 5.59, which InvestingPro analysis identifies as particularly low. According to InvestingPro’s Fair Value assessment, the stock appears undervalued. For deeper insights into RWAY’s valuation metrics and more exclusive ProTips, investors can access the comprehensive Pro Research Report, available to InvestingPro subscribers.
The firm’s estimates for 2025 suggest a robust return on equity (ROE) of approximately 11% and regular dividend coverage of 118% (108% including estimated supplemental dividends). Should the stock hit the $12.00 price target over the next twelve months, and factoring in the substantial dividend yield of 27.2% according to latest InvestingPro data, shareholders could see significant returns. The company’s commitment to shareholder returns is further evidenced by its consistent dividend payments and share buyback program.
In other recent news, Runway Growth Finance Corp reported its fourth-quarter 2024 earnings, missing both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $0.39, which was below the forecast of $0.42, and revenue of $33.8 million, falling short of the expected $36.1 million. Despite these misses, the company noted a 5% increase in the fair value of its investment portfolio year-over-year. Additionally, Runway Growth Finance’s net assets rose by 3% from the previous quarter, indicating a stable financial standing. The company also highlighted the completion of a merger involving its investment advisor, Runway Growth Capital, with BC Partners Credit. This transaction is expected to enhance the company’s origination channels and expand its product offerings. Analysts from firms such as Compass Point Research and Trading and Wells Fargo (NYSE:WFC) inquired about the company’s dividend strategy and the impact of the BC Partners integration. The company’s management emphasized a focus on disciplined financial management and projected an EPS of $1.62 for FY2025.
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