Analyzing Morgan Stanley Direct Lending Fund (NYSE:MSDL) and Horizon Technology Finance (NASDAQ:HRZN)

Horizon Technology Finance (NASDAQ:HRZN) and Morgan Stanley Direct Lending Fund (NYSE:MSDL) are both small-cap finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their institutional ownership, analyst recommendations, valuation, profitability, risk, dividends and earnings.

Dividends

Horizon Technology Finance pays an annual dividend of $0.72 per share and has a dividend yield of 18.5%. Morgan Stanley Direct Lending Fund pays an annual dividend of $1.80 per share and has a dividend yield of 11.9%. Horizon Technology Finance pays out -450.0% of its earnings in the form of a dividend. Morgan Stanley Direct Lending Fund pays out 128.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Horizon Technology Finance is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Horizon Technology Finance and Morgan Stanley Direct Lending Fund, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Horizon Technology Finance	2	4	1	0	1.86
Morgan Stanley Direct Lending Fund	0	6	1	0	2.14

Horizon Technology Finance presently has a consensus target price of $6.10, suggesting a potential upside of 56.41%. Morgan Stanley Direct Lending Fund has a consensus target price of $15.54, suggesting a potential upside of 3.01%. Given Horizon Technology Finance’s higher possible upside, research analysts clearly believe Horizon Technology Finance is more favorable than Morgan Stanley Direct Lending Fund.

Profitability

This table compares Horizon Technology Finance and Morgan Stanley Direct Lending Fund’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Horizon Technology Finance	-2.77%	14.52%	5.76%
Morgan Stanley Direct Lending Fund	30.73%	9.88%	4.49%

Institutional & Insider Ownership

4.9% of Horizon Technology Finance shares are owned by institutional investors. 1.3% of Horizon Technology Finance shares are owned by insiders. Comparatively, 0.2% of Morgan Stanley Direct Lending Fund shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Risk and Volatility

Horizon Technology Finance has a beta of 1.1, suggesting that its share price is 10% more volatile than the S&P 500. Comparatively, Morgan Stanley Direct Lending Fund has a beta of 0.35, suggesting that its share price is 65% less volatile than the S&P 500.

Earnings & Valuation

This table compares Horizon Technology Finance and Morgan Stanley Direct Lending Fund”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Horizon Technology Finance	$96.02 million	1.94	-$2.66 million	($0.16)	-24.38
Morgan Stanley Direct Lending Fund	$397.29 million	3.24	$122.09 million	$1.40	10.78

Morgan Stanley Direct Lending Fund has higher revenue and earnings than Horizon Technology Finance. Horizon Technology Finance is trading at a lower price-to-earnings ratio than Morgan Stanley Direct Lending Fund, indicating that it is currently the more affordable of the two stocks.

Summary

Horizon Technology Finance beats Morgan Stanley Direct Lending Fund on 8 of the 15 factors compared between the two stocks.

About Horizon Technology Finance

Horizon Technology Finance Corporation is a business development company specializing in lending and and investing in development-stage investments. It focuses on making secured debt and venture lending investments to venture capital backed companies in the technology, life science, healthcare information and services, cleantech and sustainability industries. It seeks to invest in companies in the United States.

About Morgan Stanley Direct Lending Fund

Morgan Stanley Direct Lending Fund is a business development company. It is a non-diversified, externally managed specialty finance company focused on lending to middle-market companies. Morgan Stanley Direct Lending Fund is based in NEW YORK.