Wells Fargo Upgrades Runway Grouwth Finance Corp. (RWAY) to Overweight

Wells Fargo analyst Finian O'Shea upgraded Runway Grouwth Finance Corp. (NASDAQ: RWAY) from Equal Weight to Overweight with a price target of $11.00.

The analyst comments "RWAY shares have lagged the industry by ~18% on a total return basis YTD and trade at 0.78x book, and could re-rate upon a shift from what is likely “peak pessimism and uncertainty” with what we see as a more right-sized consensus NOI estimate. • With that, upside from these levels could come from more 'on the run' (i.e., not 'venture growth debt') deployment that should be on the shelf at BC Partners, its potential new patron upon closing this quarter. Its more opportunistic flavor of lending, should origination cadence pick up, allows for an above-NAV valuation if sustained, given its higher-yielding orientation (and so far fairly impressive credit performance). • The flip side is that downside also remains elevated owing to RWAY's concentration which has arguably been the driver of recent underperformance. Vesta Payment was recently marked down (89% of cost, 4% of NAV), as other credits appear to be on the mend (e.g. Snagajob, and CCLDP). Previous restructuring Gynesonics has already inked an acquisition deal, potentially leading to a favorable exit. • Our PT improves to $11 from $10, reflecting a 14% yield (from 15%) on forward NOI. RWAY's recent recoveries from non-accruals / restructurings give us more confidence in its ability to preserve NAV in downside cases. That said, we note its earnings power is highly sensitive to deployments, given a low incremental financing cost (due to unused facility fees) and its typical hold size in the mid-single-digits of the portfolio. • An upside scenario most likely involves stable credit performance and lower credit spreads, resulting in a lower NOI yield on forward earnings. In an upside scenario, we believe shares would trade to $13, which reflects an 12% yield on forward NOI estimates. • A downside scenario most likely involves worsening credit performance and higher credit spreads, resulting in a higher NOI yield on forward earnings. In a downside scenario, we believe shares out trade to $10, reflecting a 16% yield on forward NOI estimates."

For an analyst ratings summary and ratings history on Runway Grouwth Finance Corp. click here. For more ratings news on Runway Grouwth Finance Corp. click here.

Shares of Runway Grouwth Finance Corp. closed at $10.41 yesterday.

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