On Wednesday, Sound Point Meridian Capital (NYSE: SPMC) stock received a new Buy rating from analyst B.Riley, accompanied by a $22.50 price target. The analyst highlighted the company’s position within a new segment of closed-end funds focused on cash flow arbitrage from CLO stocks, which are known for generating unleveraged returns in the mid-teens.
Sound Point Meridian Capital is backed by a $300 million seed portfolio, which was not raised during its June IPO, a strategy expected to facilitate effective expansion and earnings growth as the company integrates debt into its capital structure.
The majority of its existing portfolio was acquired by the company during the broader 2022-2023 diffusion environment. This timing enables Sound Point Meridian Capital to benefit from the continued increase in repositioning and refinancing activities within its collateralized loan obligations. Resets are typically beneficial because they can lengthen maturities and reduce borrowing costs within collateralized loan obligations, which can result in slightly increased shareholder returns.
External management of Sound Point Meridian Capital by Sound Point, a firm among the top five CLO managers globally, provides the fund with a strategic advantage in the market, according to the analyst. This advantage extends to both research and commercial capabilities. The analyst’s remarks underscore Sound Point Meridian Capital’s ability to efficiently grow its earnings and scale its operations, leveraging its management firm’s expertise in the competitive landscape.
In other recent news, Sound Point Meridian Capital has seen major changes to its board and executive leadership. Steven Lipiner has resigned from his position as Director and Chairman of the Audit Committee, and Matthew Furstenhausler has assumed that position. Fürstenhausler’s term is scheduled to end at the 2027 annual shareholders’ meeting. In addition, Ivana Kovačić resigned from the position of Chief Compliance Officer, making way for Lukas D. Phos.
Analyst firm Oppenheimer gave Sound Point Meridian Capital an Outperform rating, indicating a positive outlook for the company. Oppenheimer forecasts earnings per share of $1.11 for 2024, $2.52 for 2025, and $2.54 for 2026. These numbers correspond to returns on equity of 11.2%, 12.8%, and 13.1%. For each year, respectively.
The estimated fair value for Sound Point Meridian Capital shares is $20.65, leading Oppenheimer to set a price target of $21.00. This assessment is based on the company’s strategy of paying what it earns until a formal dividend policy is in place. These latest developments represent a major shift in the company’s structure and future prospects.
InvestingPro Insights
In addition to bullish analyst forecasts for Sound Point Meridian Capital (NYSE:SPMC), recent data from InvestingPro reveals some interesting insights. The company boasts a hefty dividend yield of 13.38%, with the most recent dividend date of September 16, 2024. This is in line with one of InvestingPro’s tips, which notes that SPMC “pays a significant dividend to shareholders.” This high yield can be particularly attractive to income-focused investors in the current market environment.
However, it is important to note that InvestingPro also points out potential concerns. The company is “suffering from weak gross margins” and “its valuation implies poor free cash flow yield.” These factors may warrant careful consideration, especially in light of the company’s plans to integrate debt into its capital structure as mentioned in the article.
For investors looking for a more comprehensive analysis, InvestingPro offers 11 additional tips for SPMC, providing a deeper look into the company’s financial health and market position.
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