Critical Survey: KCAP Financial (NASDAQ:KCAP) versus PennantPark Investment Corporation (PNNT)
KCAP Financial (NASDAQ: KCAP) and PennantPark Investment Corporation (NASDAQ:PNNT) are both finance companies, but which is the better investment? We will contrast the two companies based on the strength of their earnings, valuation, profitabiliy, institutional ownership, analyst recommendations, dividends and risk.
KCAP Financial pays an annual dividend of $0.48 per share and has a dividend yield of 14.0%. PennantPark Investment Corporation pays an annual dividend of $0.72 per share and has a dividend yield of 9.8%. KCAP Financial pays out 320.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. PennantPark Investment Corporation pays out 65.5% of its earnings in the form of a dividend.
Risk & Volatility
KCAP Financial has a beta of 1.71, meaning that its share price is 71% more volatile than the S&P 500. Comparatively, PennantPark Investment Corporation has a beta of 1.26, meaning that its share price is 26% more volatile than the S&P 500.
This table compares KCAP Financial and PennantPark Investment Corporation’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|PennantPark Investment Corporation||58.91%||9.98%||4.94%|
Earnings and Valuation
This table compares KCAP Financial and PennantPark Investment Corporation’s top-line revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||EBITDA||Earnings Per Share||Price/Earnings Ratio|
|KCAP Financial||$34.46 million||3.65||$5.52 million||$0.15||22.80|
|PennantPark Investment Corporation||N/A||N/A||N/A||$1.10||6.68|
KCAP Financial has higher revenue and earnings than PennantPark Investment Corporation. PennantPark Investment Corporation is trading at a lower price-to-earnings ratio than KCAP Financial, indicating that it is currently the more affordable of the two stocks.
Institutional & Insider Ownership
19.7% of KCAP Financial shares are owned by institutional investors. Comparatively, 43.8% of PennantPark Investment Corporation shares are owned by institutional investors. 8.0% of KCAP Financial shares are owned by company insiders. Comparatively, 1.9% of PennantPark Investment Corporation shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.
This is a summary of current ratings for KCAP Financial and PennantPark Investment Corporation, as reported by MarketBeat.com.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|PennantPark Investment Corporation||0||7||1||0||2.13|
KCAP Financial currently has a consensus target price of $9.75, indicating a potential upside of 185.09%. PennantPark Investment Corporation has a consensus target price of $8.07, indicating a potential upside of 9.82%. Given KCAP Financial’s stronger consensus rating and higher possible upside, equities research analysts plainly believe KCAP Financial is more favorable than PennantPark Investment Corporation.
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.
About PennantPark Investment Corporation
PennantPark Investment Corporation is a closed-end, non-diversified investment company. The Company is a business development company. Its objectives are to generate both current income and capital appreciation while seeking to preserve capital through debt and equity investments primarily made to the United States middle-market companies in the form of senior secured debt, mezzanine debt and equity investments. The Company’s debt investments may generally range in maturity from 3 to 10 years and, are made to the United States and to a limited extent, non-United States corporations, partnerships and other business entities, which operate in various industries and geographical regions. In addition, it may invest up to approximately 30% of its portfolio in non-qualifying assets. It invests in sectors, such as aerospace and defense; energy/utilities; auto sector; environmental services, and beverage, among others. PennantPark Investment Advisers, LLC is the Company’s investment advisor.
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