Financial Contrast: Ares Capital (NASDAQ:ARCC) versus WhiteHorse Finance (NASDAQ:WHF)

Ares Capital (NASDAQ:ARCC) and WhiteHorse Finance (NASDAQ:WHF) are both finance companies, but which is the superior stock? We will compare the two companies based on the strength of their risk, valuation, analyst recommendations, earnings, profitability, institutional ownership and dividends.

Analyst Recommendations

This is a summary of recent ratings and price targets for Ares Capital and WhiteHorse Finance, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ares Capital	0	2	7	0	2.78
WhiteHorse Finance	2	3	0	0	1.60

Ares Capital presently has a consensus price target of $22.00, indicating a potential upside of 13.58%. WhiteHorse Finance has a consensus price target of $7.75, indicating a potential upside of 18.32%. Given WhiteHorse Finance’s higher possible upside, analysts clearly believe WhiteHorse Finance is more favorable than Ares Capital.

Profitability

This table compares Ares Capital and WhiteHorse Finance’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Ares Capital	42.56%	9.89%	4.66%
WhiteHorse Finance	12.91%	9.93%	4.14%

Dividends

Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 9.9%. WhiteHorse Finance pays an annual dividend of $1.00 per share and has a dividend yield of 15.3%. Ares Capital pays out 103.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. WhiteHorse Finance pays out 232.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. WhiteHorse Finance has raised its dividend for 3 consecutive years. WhiteHorse Finance is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility & Risk

Ares Capital has a beta of 0.59, meaning that its share price is 41% less volatile than the S&P 500. Comparatively, WhiteHorse Finance has a beta of 0.56, meaning that its share price is 44% less volatile than the S&P 500.

Valuation and Earnings

This table compares Ares Capital and WhiteHorse Finance”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ares Capital	$3.05 billion	4.56	$1.30 billion	$1.86	10.41
WhiteHorse Finance	$92.82 million	1.64	$10.85 million	$0.43	15.23

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

Insider and Institutional Ownership

27.4% of Ares Capital shares are owned by institutional investors. Comparatively, 13.2% of WhiteHorse Finance shares are owned by institutional investors. 0.5% of Ares Capital shares are owned by insiders. Comparatively, 2.5% of WhiteHorse Finance shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Summary

Ares Capital beats WhiteHorse Finance on 11 of the 17 factors compared between the two stocks.

About Ares Capital

Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. It prefers to make investments in companies engaged in the basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors. The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors. It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office. The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity. The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions. The fund prefers to be an agent and/or lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.

About WhiteHorse Finance

WhiteHorse Finance, Inc. is business development company, non-diversified, closed end management company specializing in originating senior secured loans, lower middle market, growth capital industries. It invests in broadline retail, office services and supplies, building products, health care services, health care supplies, research and consulting services, application software, home furnishings, specialized consumer services, data processing and outsourced services, leisure facilities, cable, and satellite. It prefers to invest in United States. It typically invests between $5 million to $25 million in companies having enterprise value of between $50 million and $350 million.