Main Street Capital Corp Valuation – July 2018 $MAIN

Company Profile (excerpt from Reuters): Main Street Capital Corporation (MSCC), incorporated on March 9, 2007, is a principal investment firm. MSCC’s principal investment objective is to maximize its portfolio’s total return by generating current income from the Company’s debt investments and capital appreciation from its equity and equity related investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company. The Company is primarily focused on providing customized debt and equity financing to lower middle market (LMM) companies and debt capital to middle market (Middle Market) companies. The Company’s portfolio investments are made to support management buyouts, recapitalizations, growth financings, refinancings and acquisitions of companies that operate in various industry sectors. MSCC partners with entrepreneurs, business owners and management teams and generally provides financing alternatives within its LMM portfolio. The Company invests primarily in secured debt investments, equity investments, warrants and other securities of LMM companies based in the United States and in secured debt investments of Middle Market companies generally headquartered in the United States. The Company’s investment portfolio includes its investments in LMM portfolio companies, investments in Middle Market portfolio companies, Private Loan portfolio investments, Other Portfolio investments, and the investment in MSC Adviser I, LLC (the External Investment Manager).


Downloadable PDF version of this valuation:

ModernGraham Valuation of MAIN – July 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,270,334,307 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.36 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 28.00% Fail
6. Moderate PEmg Ratio PEmg < 20 14.74 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.60 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.36 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -5.21 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail


Stage 2: Determination of Intrinsic Value

EPSmg $2.58
MG Growth Estimate -0.71%
MG Value $18.29
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $37.43
MG Value based on 0% Growth $21.94
Market Implied Growth Rate 3.12%
Current Price $38.06
% of Intrinsic Value 208.13%

Main Street Capital Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.71 in 2014 to an estimated $2.58 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.12% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Main Street Capital Corporation revealed the company was trading above its Graham Number of $35.8. The company pays a dividend of $2.25 per share, for a yield of 5.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.74, which was below the industry average of 21.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-15.65.

Main Street Capital Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$15.65
Graham Number $35.80
PEmg 14.74
Current Ratio 0.36
PB Ratio 1.60
Current Dividend $2.25
Dividend Yield 5.90%
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $83,560,000
Total Current Liabilities $230,406,000
Long-Term Debt $765,482,000
Total Assets $2,401,175,000
Intangible Assets $0
Total Liabilities $1,004,575,000
Shares Outstanding (Diluted Average) 58,852,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.42
Dec2017 $3.01
Dec2016 $2.67
Dec2015 $2.13
Dec2014 $2.31
Dec2013 $2.65
Dec2012 $3.53
Dec2011 $2.76
Dec2010 $2.38
Dec2009 $1.19
Dec2008 $1.20
Dec2007 $0.76

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.58
Dec2017 $2.63
Dec2016 $2.51
Dec2015 $2.51
Dec2014 $2.71
Dec2013 $2.77
Dec2012 $2.63
Dec2011 $2.00
Dec2010 $1.45
Dec2009 $0.87
Dec2008 $0.60
Dec2007 $0.25

Recommended Reading:

Other ModernGraham posts about the company

Main Street Capital Corporation Valuation – September 2016 $MAIN
Main Street Capital Corporation Analysis – Initial Coverage $MAIN

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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