Prospect Capital (NYSE: TSLX) and TPG Specialty Lending (NYSE:TSLX) are both finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their valuation, risk, profitability, institutional ownership, analyst recommendations, dividends and earnings.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Prospect Capital and TPG Specialty Lending, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Prospect Capital 1 1 0 0 1.50
TPG Specialty Lending 0 0 7 0 3.00

Prospect Capital currently has a consensus target price of $5.50, indicating a potential downside of 26.08%. TPG Specialty Lending has a consensus target price of $21.00, indicating a potential upside of 3.40%. Given TPG Specialty Lending’s stronger consensus rating and higher probable upside, analysts plainly believe TPG Specialty Lending is more favorable than Prospect Capital.

Institutional & Insider Ownership

12.0% of Prospect Capital shares are owned by institutional investors. Comparatively, 60.4% of TPG Specialty Lending shares are owned by institutional investors. 7.1% of Prospect Capital shares are owned by insiders. Comparatively, 4.5% of TPG Specialty Lending shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Dividends

Prospect Capital pays an annual dividend of $0.72 per share and has a dividend yield of 9.7%. TPG Specialty Lending pays an annual dividend of $1.56 per share and has a dividend yield of 7.7%. Prospect Capital pays out 91.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. TPG Specialty Lending pays out 78.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Prospect Capital has raised its dividend for 7 consecutive years. Prospect Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Prospect Capital and TPG Specialty Lending’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Prospect Capital 45.58% 8.57% 4.86%
TPG Specialty Lending 53.60% 12.40% 6.95%

Valuation and Earnings

This table compares Prospect Capital and TPG Specialty Lending’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Prospect Capital $607.01 million 4.47 $299.86 million $0.79 9.42
TPG Specialty Lending $210.90 million 6.27 $120.25 million $2.00 10.16

Prospect Capital has higher revenue and earnings than TPG Specialty Lending. Prospect Capital is trading at a lower price-to-earnings ratio than TPG Specialty Lending, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Prospect Capital has a beta of 0.57, suggesting that its stock price is 43% less volatile than the S&P 500. Comparatively, TPG Specialty Lending has a beta of 0.66, suggesting that its stock price is 34% less volatile than the S&P 500.

Summary

TPG Specialty Lending beats Prospect Capital on 12 of the 17 factors compared between the two stocks.

Prospect Capital Company Profile

Prospect Capital Corporation is a business development company. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth, buyouts, recapitalizations, turnaround, growth capital, development, subordinated debt tranches of collateralized loan obligations, cash flow term loans, and bridge transactions. It also makes real estate investments particularly in multi-family residential real estate asset class. The fund makes secured debt, senior debt, unitranche debt, first-lien and second lien, private debt, mezzanine debt, and equity investments in private and microcap public businesses. It focuses on both primary origination and secondary loans/portfolios and invests in situations like debt financings for private equity sponsors, acquisitions, dividend recapitalizations, growth financings, bridge loans, cash flow term loans, real estate financings/investments. The fund typically invests across all industry sectors, with a particular expertise in the energy and industrial sectors. It invests in aerospace and defense, chemicals, conglomerate services, consumer services, ecological, electronics, financial services, machinery, manufacturing, media, pharmaceuticals, retail, software, specialty minerals, textiles and leather, transportation, oil and gas production, coal production, materials, industrials, consumer discretionary, information technology, utilities, pipeline, storage, power generation and distribution, renewable and clean energy, oilfield services, healthcare, food and beverage, education, business services, and other select sectors. It prefers to invest in the United States and Canada. The fund seeks to invest between $10 million to $500 million per transaction in companies with EBITDA between $5 million and $250 million, sales value between $25 million and $500 million, and enterprise value between $5 million and $1000 million. It fund also co-invests for larger deals. The fund seeks control acquisitions by providing multiple levels of the capital structure. The fund focuses on sole, agented, club, or syndicated deals.

TPG Specialty Lending Company Profile

TPG Specialty Lending, Inc. is a business development company. The fund provides senior secured loans (first-lien, second-lien, and unitranche), mezzanine debt, non-control structured equity, and common equity with a focus on co-investments for organic growth, acquisitions, market or product expansion, restructuring initiatives, recapitalizations, and refinancing. The fund invests in business services, software & technology, healthcare, energy, consumer & retail, manufacturing, industrials, royalty related businesses, education, and specialty finance. It seeks to finance middle market companies principally located in the United States. The fund invests in companies with enterprise value between $50 million and $1 billion or more and EBITDA between $10 million and $250 million. The transaction size is between $15 million and $350 million. The fund invests across the spectrum of the capital structure and can arrange syndicated transactions of up to $500 million and hold sizeable positions within its credits.

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