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Zack’s Bear of the Day: Medley Capital


Medley Capital Corporation (NYSE:MCC) has reported earnings below the Zacks Consensus in each of its last two quarters. This has caused analysts to pull back on estimates and that is what has made the stock a Zacks Rank #5 (Strong Sell) and the Bear of the Day.

Company Description

Medley Capital Corporation is a non-diversified closed end management investment company. The Company’s investment objective is to generate current income and capital appreciation by lending directly to privately-held middle market companies to help these companies fund acquisitions, growth initiatives and working capital requirements or in connection with recapitalizations or other refinancing transactions. The Company’s investment portfolio generally consists of senior secured first lien loans and senior secured second lien loans.

After A Strong Beat, Two Misses

The Bear of the Day isn’t always 100% bad news. Take the earnings history prior to the last two reports, MCC had a streak of 5 quarters where it topped the Zacks Consensus Estimate.

The problem is the last two quarters were misses and analysts have been lowering estimates for some time.

Earnings Estimates

Estimate revisions drive the Zacks Rank, and the estimate revisions for MCC have been pretty negative over the last six months. The 2015 Zacks Consensus Estimate was $1.59 in August of last year but slipped to $1.57 in November. By December, the number was down to $1.49 and at the end of February the number has fallen to $1.31.

The 2016 Zacks Consensus Estimate is also moving the wrong way, with estimates falling from $1.80 in September to the current level of $1.40.

Chart

The price and consensus chart has recently seen the addition of EPS surprises as well. The chat graphs the stock price along with the Zacks Consensus Estimates for the past several years to show how earnings estimates are a primary driver of stock prices. The recent misses and falling estimates have contributed to a falling stock price and investors would be wise to avoid holding or buying this stock until the estimates turn around and head higher.

 

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