Comparing Hercules Capital (NYSE:HTGC) and Blue Owl Capital (NYSE:OBDC)

Blue Owl Capital (NYSE:OBDC) and Hercules Capital (NYSE:HTGC) are both mid-cap finance companies, but which is the superior stock? We will compare the two businesses based on the strength of their valuation, institutional ownership, profitability, analyst recommendations, earnings, dividends and risk.

Volatility & Risk

Blue Owl Capital has a beta of 0.64, meaning that its stock price is 36% less volatile than the S&P 500. Comparatively, Hercules Capital has a beta of 0.82, meaning that its stock price is 18% less volatile than the S&P 500.

Institutional and Insider Ownership

42.8% of Blue Owl Capital shares are owned by institutional investors. Comparatively, 19.7% of Hercules Capital shares are owned by institutional investors. 0.1% of Blue Owl Capital shares are owned by insiders. Comparatively, 2.0% of Hercules Capital shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Analyst Recommendations

This is a summary of current ratings and price targets for Blue Owl Capital and Hercules Capital, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Blue Owl Capital	0	3	3	1	2.71
Hercules Capital	0	2	5	1	2.88

Blue Owl Capital presently has a consensus target price of $12.83, indicating a potential upside of 27.00%. Hercules Capital has a consensus target price of $18.89, indicating a potential upside of 14.40%. Given Blue Owl Capital’s higher probable upside, equities research analysts plainly believe Blue Owl Capital is more favorable than Hercules Capital.

Earnings and Valuation

This table compares Blue Owl Capital and Hercules Capital”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Blue Owl Capital	$1.85 billion	2.69	$800.36 million	$0.56	18.04
Hercules Capital	$532.49 million	5.80	$339.74 million	$2.01	8.22

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

Dividends

Blue Owl Capital pays an annual dividend of $1.24 per share and has a dividend yield of 12.3%. Hercules Capital pays an annual dividend of $1.60 per share and has a dividend yield of 9.7%. Blue Owl Capital pays out 221.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Hercules Capital pays out 79.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Blue Owl Capital has raised its dividend for 2 consecutive years and Hercules Capital has raised its dividend for 1 consecutive years. Blue Owl Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Blue Owl Capital and Hercules Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Blue Owl Capital	16.99%	9.49%	4.19%
Hercules Capital	67.68%	16.01%	7.71%

Summary

Hercules Capital beats Blue Owl Capital on 10 of the 17 factors compared between the two stocks.

About Blue Owl Capital

Blue Owl Capital Corporation is a business development company. It specializes in direct and fund of fund investments. The fund makes investments in senior secured, direct lending or unsecured loans, subordinated loans or mezzanine loans and also considers equity-related securities including warrants and preferred stocks also pursues preferred equity investments, first lien, unitranche, and second lien term loans and common equity investments. Within private equity, it seeks to invest in growth, acquisitions, market or product expansion, refinancings and recapitalizations. It seeks to invest in middle market and upper middle market companies based in the United States, with EBITDA between $10 million and $250 million annually and/or annual revenue of $50 million and $2.5 billion at the time of investment. It seeks to invest in investments with maturities typically between three and ten years. It seeks to make investments generally ranging in size between $20 million and $250 million.

About Hercules Capital

Hercules Capital, Inc. is a business development company. The firm specializing in providing venture debt, debt, senior secured loans, and growth capital to privately held venture capital-backed companies at all stages of development from startups to expansion stage including select publicly listed companies and select special opportunity lower middle market companies that require additional capital to fund acquisitions, recapitalizations and refinancing and established-stage companies. The firm provides growth capital financing solutions for capital extension; management buy-out and corporate spin-out financing solutions; company, asset specific, or intellectual property acquisition financing; convertible, subordinated and/or mezzanine loans; domestic and international corporate expansion; vendor financing; revenue acceleration by sales and marketing development, and manufacturing expansion. It provides asset-based financing with a focus on cash flow; accounts receivable facilities; equipment loans or leases; equipment acquisition; facilities build-out and/or expansion; working capital revolving lines of credit; inventory. The firm also provides bridge financing to IPO or mergers and acquisitions or technology acquisition; dividend recapitalizations and other sources of investor liquidity; cash flow financing to protect against share price volatility; competitor acquisition; pre-IPO financing for extra cash on the balance sheet; public company financing to continue asset growth and production capacity; short-term bridge financing; and strategic and intellectual property acquisition financings. It also focuses on customized financing solutions, emerging growth, mid venture, and late venture financing. The firm invests primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. The firm generally seeks to invest in companies that have been operating for at least six to 12 months prior to the date of their investment. It prefers to invest in technology, SaaS Finance, energy technology, sustainable and renewable technology, and life sciences. Within technology the firm focuses on advanced specialty materials and chemicals; communication and networking, consumer and business products; consumer products and services, digital media and consumer internet; electronics and computer hardware; enterprise software and services; gaming; healthcare services; information services; business services; media, content and information; mobile; resource management; security software; semiconductors; semiconductors and hardware; and software sector. Within energy technology, it invests in agriculture; clean technology; energy and renewable technology, fuels, and power technology; geothermal; smart grid and energy efficiency and monitoring technologies; solar; and wind. Within life sciences, the firm invests in biopharmaceuticals; biotechnology tools; diagnostics; drug discovery, drug platform, development, and delivery; medical devices and equipment; surgical devices; therapeutics; pharma services; and specialty pharmaceuticals. Within sustainable and renewables, it invests in Vehicle Technology, Energy Generation and Storage, Ag Technology, Advanced Materials, and Industry 4.0. It also invests in educational services. The firm invests primarily in United States based companies and considers investment in the West Coast, Mid-Atlantic regions, Southeast and Midwest, particularly in the areas of software, biotech, and information services. The firm prefers to invest between $5 million and $200 million in equity per transactions. It invests generally between $1 million and $40 million in companies focused primarily on business services, communications, electronics, hardware, and healthcare services. The firm invests primarily in private companies but also have investments in public companies. For equity investments, the firm seeks to represent a controlling interest in its portfolio companies which may exceed 25% of the voting securities of such companies. The firm seeks to invest a limited portion of its assets in equipment-based loans to early-stage prospective portfolio companies. These loans are generally for amounts up to $3 million but may be up to $15 million for certain energy technology venture investments. The firm allows certain debt investments have the right to convert a portion of the debt investment into equity. It also co-invests with other private equity firms. The firm seeks to exit its investments through initial public offering, a private sale of equity interest to a third party, a merger or an acquisition of the company or a purchase of the equity position by the company or one of its stockholders. The firm has structured debt with warrants which typically have maturities of between two and seven years with an average of three years; senior debt with an investment horizon of less than three years; equipment loans with an investment horizon ranging from three to four years; and equity related securities with an investment horizon ranging from three to seven years. The firm prefers to invest through its balance sheet capital. The firm formerly known as Hercules Technology Growth Capital, Inc. Hercules Capital, Inc. was founded in December 2003 and is based in San Mateo, California with additional offices in North America and Europe.