Prospect Capital’s results for Q2 reflected a shift in the business development company’s portfolio mix and ongoing focus on capital preservation, as management continued to rotate assets into first lien senior secured middle market loans. CEO John Barry and President Grier Eliasek attributed the performance to disciplined asset rotation and reduced exposure to subordinated structured notes. Management highlighted the company’s recurring interest income and low non-accrual rates as evidence of its conservative approach, with Eliasek noting, “Our performing interest-bearing investments were generating an annualized yield of 11.2% as of December.”
Is now the time to buy PSEC? Find out in our full research report (it’s free).
Prospect Capital (PSEC) Q2 CY2025 Highlights:
- Revenue: $166.9 million vs analyst estimates of $167.1 million (21.3% year-on-year decline, in line)
- Adjusted EPS: $0.17 vs analyst estimates of $0.13 (33.9% beat)
- Operating Margin: 67.9%, in line with the same quarter last year
- Market Capitalization: $1.36 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Prospect Capital’s Q2 Earnings Call
-
Finian O'Shea (Wells Fargo): asked about how recent rating changes could affect Prospect’s approach to refinancing and use of unsecured debt versus its revolving facility. CEO John Barry responded that the company does not anticipate major changes to its financing strategy, emphasizing the benefit of a diversified set of funding sources.
-
Finian O'Shea (Wells Fargo): inquired about the participation and rationale behind recent preferred exchange offers, and whether the current environment suggests further preferred issuances. Barry indicated strong historical participation in exchanges and explained the company’s preference for balancing fixed versus floating rate preferreds depending on market conditions.
-
Finian O'Shea (Wells Fargo): asked for confirmation regarding the coupon rate of the new preferred securities, and whether that rate is indicative of future preferred issuances. John Barry confirmed the 7.5% coupon and discussed the company’s approach to fixed versus floating rate instruments.
-
Finian O'Shea (Wells Fargo): probed management’s expectations for demand in future preferred offerings. Barry noted that strong participation in prior exchanges supports confidence in market demand for new preferreds.
-
Finian O'Shea (Wells Fargo): sought clarity on whether the company’s capital allocation priorities would shift if market conditions change. Barry reiterated management’s intent to maintain discipline in asset rotation and liability management regardless of market volatility.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will closely watch (1) Prospect Capital’s pace of originations in first lien senior secured loans, (2) progress on monetizing additional real estate assets and redeploying proceeds, and (3) execution of liability management initiatives, including potential preferred issuances or exchanges. The evolving interest rate environment and competitive dynamics in middle market lending remain important variables for tracking overall business momentum.
Prospect Capital currently trades at $2.97, up from $2.85 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).
The Best Stocks for High-Quality Investors
When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.
Don’t let fear keep you from great opportunities and take a look at Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
