On Monday, Trinity Capital Inc . (NASDAQ:TRIN), experienced a downgrade in its stock rating by Wells Fargo (NYSE:WFC), moving from Equal Weight to Underweight.
The investment firm also set a price target for Trinity Capital at $13.00, near the lower end of analyst targets ranging from $13 to $17.
"Credit loss has consumed ~45% of NOI since 2Q22, which reflects TRIN's higher-yielding / higher- loss strategy," Wells Fargo analysts point out.
The analyst pointed out that Trinity Capital's strategy of issuing stock above net asset value (NAV) has partially mitigated the per-share impact, but such a tactic may be unsustainable due to the company's size.
The investment firm also highlighted concerns over Trinity Capital's concentrated exposure to residential real estate credits. Notably, Trinity Capital added two new non-accruals in the third quarter of 2024. One of these, Formlogic, was placed on non-accrual within a year of the loan's origination. Additionally, the largest borrower in the real estate sector, Knockaway, has shown through SEC filings related to crowdfunding efforts that the loans from Trinity Capital were only partially secured by warehoused mortgages.
Wells Fargo's maintained price target of $13.00 reflects a valuation equal to Trinity Capital's NAV. The firm suggests that for Trinity Capital to achieve a premium valuation, it would need to scale up significantly to improve its economics per share and demonstrate a sustained improvement in credit performance. Currently trading at a P/E ratio of 8.14, the stock presents mixed sign
The firm outlined potential scenarios for Trinity Capital's future stock performance. In an optimistic scenario, where credit stability and shareholder economics improve through scaling, the shares could re-rate to 1.15 times NAV, or $15.00 per share. Conversely, in a pessimistic scenario involving continued credit losses and market spread widening, the shares could re-rate lower to 0.85 times NAV, or $11.00 per share.
In other recent news, Trinity Capital reported record-breaking financial results for the third quarter of 2024. The company registered a net investment income of $29 million and an 11% hike in net asset value (NAV) to $757 million. The firm's assets under management (AUM) reached a notable $2 billion mark. Furthermore, Trinity Capital announced a cash dividend of $0.51 per share, marking its 19th quarter of consistent or increased dividends.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.