Solar Capital (NASDAQ: SLRC) and KCAP Financial (NASDAQ:KCAP) are both small-cap finance companies, but which is the superior stock? We will compare the two businesses based on the strength of their risk, valuation, institutional ownership, earnings, profitabiliy, dividends and analyst recommendations.

Analyst Ratings

This is a breakdown of recent ratings and price targets for Solar Capital and KCAP Financial, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Solar Capital 0 4 3 0 2.43
KCAP Financial 0 1 1 0 2.50

Solar Capital currently has a consensus target price of $22.40, indicating a potential upside of 4.09%. KCAP Financial has a consensus target price of $10.00, indicating a potential upside of 192.40%. Given KCAP Financial’s stronger consensus rating and higher probable upside, analysts clearly believe KCAP Financial is more favorable than Solar Capital.

Dividends

Solar Capital pays an annual dividend of $1.60 per share and has a dividend yield of 7.4%. KCAP Financial pays an annual dividend of $0.48 per share and has a dividend yield of 14.0%. Solar Capital pays out 70.5% of its earnings in the form of a dividend. KCAP Financial pays out 300.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Profitability

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

Net Margins Return on Equity Return on Assets
Solar Capital 62.94% 7.70% 4.16%
KCAP Financial 17.96% 8.59% 4.43%

Earnings and Valuation

This table compares Solar Capital and KCAP Financial’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Solar Capital N/A N/A N/A $2.27 9.48
KCAP Financial $34.46 million 3.65 $5.89 million $0.16 21.38

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

Insider & Institutional Ownership

62.5% of Solar Capital shares are owned by institutional investors. Comparatively, 19.6% of KCAP Financial shares are owned by institutional investors. 5.9% of Solar Capital shares are owned by insiders. Comparatively, 8.0% of KCAP Financial shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Risk and Volatility

Solar Capital has a beta of 0.57, meaning that its stock price is 43% less volatile than the S&P 500. Comparatively, KCAP Financial has a beta of 1.87, meaning that its stock price is 87% more volatile than the S&P 500.

Summary

KCAP Financial beats Solar Capital on 8 of the 14 factors compared between the two stocks.

About Solar Capital

Solar Capital Ltd. is a closed-end, externally managed, non-diversified management investment company. The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. It invests in privately held the United States middle market companies. It invests in leveraged middle market companies in the form of senior secured loans, unitranche loans, mezzanine loans and equity securities. It may also invest in public companies that are thinly traded. Its business is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Its investments generally range between $5 million and $100 million each. In addition, the Company may invest a portion of its portfolio in other types of investments, which it refers to as opportunistic investments. The Company’s investment activities are managed by Solar Capital Partners, LLC (Solar Capital Partners or the Investment Advisor).

About KCAP Financial

KCAP Financial, Inc. is an internally managed, non-diversified closed-end investment company. The Company has approximately three principal areas of investments. First, the Company originates, structures and invests in senior secured term loans and mezzanine debt primarily in privately-held middle market companies (the debt securities portfolio). In addition, the Company may invest in the equity securities of privately held middle market companies. Second, the Company invests in asset management companies (the Asset Manager Affiliates) that manage collateralized loan obligation funds (CLO Funds). Third, the Company invests in debt and subordinated securities issued by CLOs (CLO fund securities). These CLO fund securities are primarily managed by its Asset Manager Affiliates, but from time-to-time the Company makes investments in CLO Fund Securities managed by other asset managers. The CLO funds typically invest in syndicated loans, high-yield bonds and other credit instruments.

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