PennantPark Investment (PNNT) Stock

PNNT trades at a ~10% discount and offers a yield of ~14%. It has also performed in line with the BDC index this year. While this sounds interesting, it is a clear no-go case.

PennantPark Investment Corporation's recent dividends were not fully covered by net investment income, leading me to revise my rating from buy to hold. PNNT has a well-diversified portfolio but has significant exposure to equity positions, which can be challenging to value and often lead to market discounts. Despite a strong internalized rate of return on equity investments, the lack of progress in rotating out of equity positions is a negative development.

MIAMI, Dec. 03, 2024 (GLOBE NEWSWIRE) -- PennantPark Investment Corporation (the "Company") (NYSE: PNNT) declares its monthly distribution for December 2024 of $0.08 per share, payable on January 2, 2025 to stockholders of record as of December 16, 2024. The distribution is expected to be paid from taxable net investment income. The final specific tax characteristics of the distribution will be reported to stockholders on Form 1099 after the end of the calendar year and in the Company's periodic report filed with the Securities and Exchange Commission.

PennantPark Investment Corporation (NYSE:PNNT ) Q4 2024 Results Conference Call November 26, 2024 12:00 PM ET Company Participants Art Penn - Chairman and Chief Executive Officer Rick Allorto - Chief Financial Officer Conference Call Participants Mark Hughes - Truist Robert Dodd - Raymond James Paul Johnson - KBW Melissa Wedel - JPMorgan Casey Alexander - Compass Point Operator Good afternoon, and welcome to the PennantPark Investment Corporation's Fourth Fiscal Quarter 2024 Earnings Conference Call. Today's conference is being recorded.

While the top- and bottom-line numbers for PennantPark (PNNT) give a sense of how the business performed in the quarter ended September 2024, it could be worth looking at how some of its key metrics compare to Wall Street estimates and year-ago values.

PennantPark (PNNT) came out with quarterly earnings of $0.22 per share, in line with the Zacks Consensus Estimate. This compares to earnings of $0.24 per share a year ago.

PennantPark (PNNT) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

I am downgrading my rating on PennantPark Investment Corporation due to weak distribution coverage and a rising non-accrual rate, indicating lower portfolio quality. Despite a high dividend yield of 13.6%, PNNT's core net investment income is insufficient to cover distributions without relying on special dividends from the joint venture portfolio. PNNT's diversified portfolio includes 56% first lien debt and is diversified by industry. However, the equity exposure could elevate the risk profile.

The short- to medium-term outlook for BDCs is challenging due to low M&A activity, high corporate distress, and yield compression from decreasing interest rates. To avoid income reduction risk, investors should focus on very high-quality BDCs. In this respect, one might think that those BDCs that have recently hiked their dividends are the ones with more sustainable cash distribution profiles.