Hercules Capital, Inc. (HTGC): what the price assumes
In the published model solve dated 2026-Q2, anchored at $15.67, Hercules Capital, Inc. (HTGC) is priced for 10.8% return on equity. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-24.
Generated: 2026-07-24 · Exported: 2026-07-25 · Source: https://boothcheck.com/report/HTGC
Headline
| Field | Value |
|---|---|
| Ticker | HTGC |
| Company | Hercules Capital, Inc. |
| Sector / Industry | Financial Services |
| Current price | $15.67/sh |
What The Price Assumes (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | financials |
| Return on equity needed | 10.8% |
| Return on equity now | 15.3% |
| ROE gap | -4.5pp |
| Price-to-book | 1.32x |
Solve inputs: computed at a 9.2% cost of equity with 4% terminal growth over a 5-year stage, on common book equity (FY2026); each 1pp of cost of equity moves the implied ROE ~1.3pp.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -1.42σ |
| sustained it ~10 years at this level | 74% |
| implied end-window share | 0% |
Valuation X-Ray
The price is supported by asset-based and earnings-power and relative-multiple and growth-DCF value. A value/asset-supported name, not a pure growth bet.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 0.71x | 4 | justifies |
| Earnings | 0.54x | 2 | justifies |
| Relative | 0.47x | 4 | justifies |
| Growth | 0.94x | 2 | justifies |
Families that justify the price: Asset, Earnings, Relative, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 5.5%); the inversion above states its own rate.
Per-Model Detail (n=12)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $0.00 | — | no | Negative/zero FCF — equity value floored at $0 |
| DCF Exit Multiple | Growth | $0.00 | — | no | Negative/zero FCF or EBITDA — equity value floored at $0 |
| Relative Valuation | Relative | $22.92 | 0.68x | yes | P/E 12x (static sector reference · 2026-04), scenarios: 9.9x / 12.0x / 14.1x (bear / base = reference held flat / bull), EV/EBITDA N/Ax |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | $60.84 | 0.26x | yes | Stage 1: 20% for 5yr, Stage 2: 3.5% perpetual |
| Simple Excess Return | Asset | $18.23 | 0.86x | yes | BV/sh $11.31, ROE (TTM) 14.9%, ke 9.3% |
| Two-Stage Excess Return | Asset | $22.87 | 0.69x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $9.69 | 1.62x | yes | Rev $0.5B, growth 13% (input: historical growth; tapered), Terminal P/S: 4.8x / 5.8x / 6.9x (bear / base = today's held flat / bull, cap 12x) |
| Peter Lynch Fair Value | Relative | $61.06 | 0.26x | yes | EPS $1.79, growth 34% (input: historical EPS growth), PEG=0.27 (Undervalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | $23.48 | 0.67x | yes | BV $11.31 + 5yr PV of (ROE (TTM) 14.9% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $21.35 | 0.73x | yes | √(22.5 × EPS $1.79 × BVPS $11.31) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | — | — | no | — |
| FCF Yield | Earnings | — | — | no | — |
| SBC-Adj FCF Yield | Earnings | — | — | no | — |
| Ben Graham Formula | Earnings | $57.76 | 0.27x | yes | EPS $1.79 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | $8.06 | 1.94x | yes | Revenue $0.53B × sector P/S 3.0x |
| PEG Fair Value | Relative | $67.13 | 0.23x | yes | EPS $1.79 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $19.35 | 0.81x | yes | EPS $1.79 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Share count CAGR (dilution) | 13.6% |
Deposit/float-funded balance sheet: debt is funding, not corporate leverage, and GAAP operating cash flow follows loan flows. Net-debt, interest-coverage, and cash-burn lenses do not apply. The solvency frame for a financial is regulatory capital and payout capacity (CET1, stress buffer, dividends plus buybacks against earnings).
Bullet Takeaways
- Lending to venture-backed technology and life-science companies is a business almost nobody does at scale, and the spread Hercules earns on it is the whole reason the shares change hands at roughly 1.3 times the accounting value of the loan book rather than at it.
- The risk that matters is the funding cycle behind the borrowers, not the borrowers one by one: 28.6% of the portfolio sat in the middle credit grade at the end of March, with a single loan on non-accrual at 0.2% of the portfolio at cost.
- Second-quarter results land on July 30, 2026, and the two lines to read are the portfolio yield as base rates move and whether balance-sheet leverage keeps climbing after GAAP leverage reached 115.4% in the March quarter.
Bull Case
Almost every business development company hands the keys to an outside manager, who charges a fee on the assets and a second fee on income above a hurdle, and the shareholder pays for both whether or not the loans behave. Hercules runs itself. Its investment adviser subsidiary is wholly owned, which means the cost of running the portfolio shows up as the company's own operating expense rather than as a fee paid to someone with a different set of incentives.
The credit record built inside that structure is the real argument. Across $23.6 billion of commitments since inception, cumulative net realized losses total roughly $115 million, an annualized loss rate of about 2.3 basis points. Venture lending sounds like the riskiest corner of private credit, and in the wrong hands it is. Done with warrants, covenants, tight amortization and a bias toward companies whose sponsors have deep pockets, it has produced losses smaller than most banks book on prime commercial lending.
The March quarter showed the machine at full speed. Total investment income of $141.5 million rose 18.4% on the year, net investment income reached $88.1 million or $0.48 a share, new debt and equity commitments hit $1.81 billion against $706.4 million of actual fundings, and assets under management reached about $6.1 billion. Return on average equity ran at 16.9% for the quarter against 10.6% for the peer BDC group, on a debt portfolio yielding 12.8%. Credit quality moved the right way too, with the weighted average internal rating improving to 2.11 from 2.31 a year earlier.
There is a second engine that does not consume the balance sheet at all. Hercules Adviser, the wholly owned manager of the private funds, ran close to $2.0 billion of committed capital and contributed roughly $23 million of net investment income in 2025, up about a third on the year. That is fee income earned on other people's capital, and it grows without the company having to issue a share or draw a dollar of its own borrowing.
Distributions have been the point of owning this. The base distribution ran at $0.40 a share for the March quarter with a further $0.07 supplemental, the twenty-third consecutive quarter carrying one, and undistributed spillover stood at $149.1 million, or about $0.80 for each share outstanding. Spillover is the buffer that lets a lender keep paying through a soft quarter without cutting, and this one is worth more than four quarters of supplemental payments.
Which brings the bull case to what the market is actually asking of the business. The price needs a return on equity of about 10.8% held over time. Hercules has lately been earning a return on equity of about 15.3%. The bar sits well under the demonstrated result, and history is not against it either: among firms earning this kind of return, roughly 74% held it over a comparable stretch. The bull case asks the company to keep doing what it has already done for years.
Bear Case
The premium is where the risk lives. Buyers are paying about 1.3 times the book value of a loan portfolio, and a loan portfolio is worth its book value unless the lender earns more on it than shareholders require. That is the whole architecture of the price. Today it needs a return on equity of about 10.8%. That is already a step down, since the recent return on equity has run near 15.3%, and the arithmetic of a further slide is unkind: if the return drifts toward the roughly 9% a venture lender's equity should cost, the premium loses its justification and the shares converge toward the book value of the loans. That is a fall of about a quarter before a single borrower misses a payment.
Three things could produce that drift, and two of them are already visible. The first is rates. Effectively the entire loan book floats, and the debt portfolio yielded 12.8% in the March quarter. Every reduction in base rates walks straight through investment income within a quarter or two, and unlike a bank, there is no deposit franchise on the other side repricing downward to cushion it.
The second is competition for the loans themselves. New commitments of $1.81 billion in a single quarter, up 77.8% year over year, tell you capital is being deployed at a pace. Deploying more while the yield on what you own drifts lower is the recognizable shape of spread compression, and the venture-lending market has drawn a great deal of new private-credit money looking for exactly these borrowers.
The third is leverage, and this one is a choice. GAAP leverage climbed to 115.4% from 104.4% over the quarter, with regulatory leverage excluding the SBA facilities at 99.7% against a 200% ceiling. There is real headroom there. But adding borrowed money to a portfolio whose spread is narrowing is how a lender holds its return on equity steady while the underlying economics soften, and the two look identical in a single quarter's results.
Underneath sits the credit question nobody can settle from a spreadsheet. These borrowers are venture-backed technology and life-science companies, many pre-profit, and repayment usually depends on the next equity round rather than on operating cash flow. The portfolio is concentrated in application software, drug discovery, biotechnology tools and medical devices. Roughly 28.6% carries the middle internal grade, and the single non-accrual is carried at $3.7 million against a cost of $10.7 million. That is a benign picture, but the loss record it belongs to was built almost entirely across an era of abundant venture funding. A prolonged drought in that funding would test the model in a way the last two decades did not.
The share count is the quiet structural point. It has grown about 13.6% a year over the past four years, because a lender that pays out nearly everything it earns can only grow by issuing equity. When the stock trades above book, that issuance adds to book value for existing holders and everyone is happy. It also means the growth engine is switched off precisely when the shares fall to book, which is the same moment the portfolio would most want fresh capital. Net asset value per share slipped 1.9% to $11.90 during the March quarter even as the share count rose. Accretive issuance is not the same thing as compounding.
Valuation
At $15.67, shareholders are paying about 1.3 times the book value of the loan portfolio, and everything worth arguing about lives in that premium. The market is not paying it for growth. It is paying for a return on equity, and the specific one embedded in the price is about 10.8% held over time.
Set that against the record: the business has recently been earning a return on equity of about 15.3%. The price is therefore marking the current run rate down by a wide margin rather than extrapolating it. Persistence at this level is also not rare: roughly 74% of firms earning this kind of return kept it over a comparable stretch. On the two questions the price actually asks, the demanded return is below the delivered one, and the record says returns like this tend to hold.
The methods used to triangulate the shares all land above the current quote, which is unusual and worth reading carefully. The methods anchored on book value plus excess return land about 29% above the price. The earnings-based lenses land about 46% above, peer multiples about 53% above, and even the forward growth methods sit about 6% above. When no family finds the price expensive, the useful question stops being whether the shares are stretched and becomes why the market discounts them anyway. For a venture lender the honest answer is the asset class: floating-rate loans to pre-profit borrowers are marked quarterly, and the market has historically been unwilling to pay book-plus-full-excess-return for that kind of collateral.
The balance-sheet frame here is regulatory capacity and payout, not corporate leverage. Debt is the raw material of the business rather than a burden on it, so the meaningful readings are how much room remains under the regulatory ceiling and how much of what the company earns leaves the building. Regulatory leverage excluding the SBA facilities stood at 99.7% against a 200% limit, available liquidity was over $1.0 billion, and the funding stack was extended during the quarter with $300.0 million of 5.350% unsecured notes due 2029. On the payout side, about 97.9% of what the company earned in the latest fiscal year went back out as distributions and buybacks, which is a structural feature rather than a policy choice: a regulated investment company that retains earnings loses its tax treatment.
That payout ratio is also the hinge for a shareholder's per-share outcome. Retaining nothing means the equity base grows only by issuing new shares, and the count has risen about 13.6% a year over the past four years. Each of those issues added to book value while the stock traded above it. The premium in the price is therefore not only a judgment about the return on equity; it is a working part of the machine that produces the return.
Catalysts
Second-quarter results arrive after the close on July 30, 2026, with the call the same afternoon. Three lines carry most of the information. The effective yield on the debt portfolio, which ran at 12.8% in the March quarter, is the direct read on where lending spreads and base rates are heading. GAAP leverage, which rose to 115.4% from 104.4% over the March quarter, shows whether the balance sheet is still being pushed to support growth. And the non-accrual line, which held at a single loan at the end of March, is the one that would matter most if it moved.
Distribution mechanics are the second thing to watch. The March quarter carried a $0.40 base distribution plus $0.07 supplemental, the twenty-third consecutive quarter with a supplemental attached, funded partly out of undistributed spillover of about $0.80 a share. The supplemental is the swing factor: it flexes with earnings in a way the base does not, so it is where any softening in net investment income would appear first.
The private funds business is the slower-moving item. Hercules Adviser ran close to $2.0 billion of committed capital and contributed roughly $23 million of net investment income in 2025. Growth there arrives through fund closes rather than quarterly prints, and it is the one part of the story that scales without new shares.
Beyond the company, the variable that drives everything is venture funding itself. These loans are repaid out of subsequent equity rounds far more often than out of operating cash flow, so the health of the venture market is the credit cycle for this portfolio.
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Hercules Capital Q1 2026 results, May 2026 · Hercules Capital Q2 2026 earnings announcement and Q1 2026 investor presentation · Hercules Capital Q1 2026 investor presentation · Hercules Capital Q4 2025 earnings call, February 2026 · Hercules Capital Q1 2026 results and investor presentation, May 2026 · Hercules Capital earnings announcement