American Capital Senior Floating (NASDAQ: ACSF) and Solar Capital (NASDAQ:SLRC) are both small-cap finance companies, but which is the better business? We will compare the two companies based on the strength of their valuation, risk, analyst recommendations, profitabiliy, institutional ownership, dividends and earnings.

Profitability

This table compares American Capital Senior Floating and Solar Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
American Capital Senior Floating 174.27% 9.04% 4.81%
Solar Capital 62.94% 7.70% 4.16%

Institutional & Insider Ownership

35.6% of American Capital Senior Floating shares are owned by institutional investors. Comparatively, 62.5% of Solar Capital shares are owned by institutional investors. 0.2% of American Capital Senior Floating shares are owned by insiders. Comparatively, 5.9% of Solar Capital shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Risk and Volatility

American Capital Senior Floating has a beta of 1.31, indicating that its stock price is 31% more volatile than the S&P 500. Comparatively, Solar Capital has a beta of 0.55, indicating that its stock price is 45% less volatile than the S&P 500.

Dividends

American Capital Senior Floating pays an annual dividend of $1.16 per share and has a dividend yield of 8.9%. Solar Capital pays an annual dividend of $1.60 per share and has a dividend yield of 7.3%. American Capital Senior Floating pays out 37.3% of its earnings in the form of a dividend. Solar Capital pays out 70.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. American Capital Senior Floating is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Ratings

This is a summary of current ratings and recommmendations for American Capital Senior Floating and Solar Capital, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
American Capital Senior Floating 0 1 1 0 2.50
Solar Capital 0 4 3 0 2.43

American Capital Senior Floating presently has a consensus price target of $10.75, suggesting a potential downside of 17.31%. Solar Capital has a consensus price target of $22.40, suggesting a potential upside of 2.56%. Given Solar Capital’s higher probable upside, analysts clearly believe Solar Capital is more favorable than American Capital Senior Floating.

Earnings & Valuation

This table compares American Capital Senior Floating and Solar Capital’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
American Capital Senior Floating N/A N/A N/A $3.11 4.18
Solar Capital N/A N/A N/A $2.27 9.62

American Capital Senior Floating is trading at a lower price-to-earnings ratio than Solar Capital, indicating that it is currently the more affordable of the two stocks.

Summary

American Capital Senior Floating beats Solar Capital on 8 of the 13 factors compared between the two stocks.

About American Capital Senior Floating

American Capital Senior Floating, Ltd. is a non-diversified closed-end investment management company. The Company’s investment objective is to provide attractive, risk-adjusted returns over the long term primarily through current income while seeking to preserve its capital. It manages a leveraged portfolio composed primarily of diversified investments in first lien and second lien floating rate loans principally to the United States-based companies (collectively, Senior Floating Rate Loans or SFRLs), which are referred to as leveraged loans. It invests in equity tranches of collateralized loan obligations (CLOs), which are securitized vehicles collateralized primarily by SFRLs, and it may invest in debt tranches of CLOs. In addition, it may selectively invest in loans issued by middle market companies, mezzanine and unitranche loans and high yield bonds. It has over 80% of its assets in Senior Floating Rate Loans. The Company is managed by American Capital ACSF Management, LLC.

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).

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