Contrasting Ares Capital (NASDAQ:ARCC) and Medallion Financial (NASDAQ:MFIN)

Ares Capital (NASDAQ:ARCC) and Medallion Financial (NASDAQ:MFIN) are both finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their analyst recommendations, dividends, institutional ownership, earnings, profitability, valuation and risk.

Volatility and Risk

Ares Capital has a beta of 0.58, indicating that its stock price is 42% less volatile than the S&P 500. Comparatively, Medallion Financial has a beta of 0.77, indicating that its stock price is 23% less volatile than the S&P 500.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Ares Capital	37.30%	9.85%	4.59%
Medallion Financial	10.35%	7.73%	1.35%

Valuation & Earnings

This table compares Ares Capital and Medallion Financial”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	4.42	$1.30 billion	$1.63	11.52
Medallion Financial	$236.12 million	0.95	$43.04 million	$1.48	6.33

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

Analyst Ratings

This is a breakdown of current ratings and price targets for Ares Capital and Medallion Financial, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ares Capital	0	2	9	0	2.82
Medallion Financial	0	2	1	0	2.33

Ares Capital presently has a consensus target price of $20.75, indicating a potential upside of 10.49%. Medallion Financial has a consensus target price of $12.00, indicating a potential upside of 28.07%. Given Medallion Financial’s higher probable upside, analysts clearly believe Medallion Financial is more favorable than Ares Capital.

Dividends

Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.2%. Medallion Financial pays an annual dividend of $0.56 per share and has a dividend yield of 6.0%. Ares Capital pays out 117.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Medallion Financial pays out 37.8% of its earnings in the form of a dividend.

Institutional and Insider Ownership

27.4% of Ares Capital shares are owned by institutional investors. Comparatively, 40.6% of Medallion Financial shares are owned by institutional investors. 0.5% of Ares Capital shares are owned by insiders. Comparatively, 24.6% of Medallion Financial shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Summary

Ares Capital beats Medallion Financial on 11 of the 16 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 Medallion Financial

Medallion Financial Corp., together with its subsidiaries, operates as a specialty finance company in the United States. It operates in four segments: Recreation Lending, Home Improvement Lending, Commercial Lending, and Taxi Medallion Lending. The company offers loans that finance consumer purchases of recreational vehicles, boats, and other consumer recreational equipment; consumer financing for window, siding, and roof replacement, swimming pool installations, and other home improvement projects; senior and subordinated loans for the purchase of equipment and related assets necessary to open a new business, or purchase or improvement of an existing business; and taxi medallion loans to individuals and small to mid-size businesses. It also provides debt, mezzanine, and equity investment capital to companies in various commercial industries; and raises deposits and conducts other banking activities. Medallion Financial Corp. was incorporated in 1995 and is headquartered in New York City, New York.