Critical Review: Ares Capital Corporation (ARCC) versus TPG Specialty Lending (TSLX)
Ares Capital Corporation (NASDAQ: ARCC) and TPG Specialty Lending (NYSE:TSLX) are both finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their analyst recommendations, institutional ownership, risk, earnings, profitability, valuation and dividends.
Insider & Institutional Ownership
45.9% of Ares Capital Corporation shares are owned by institutional investors. Comparatively, 62.7% of TPG Specialty Lending shares are owned by institutional investors. 0.5% of Ares Capital Corporation shares are owned by insiders. Comparatively, 4.9% of TPG Specialty Lending shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.
This table compares Ares Capital Corporation and TPG Specialty Lending’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|Ares Capital Corporation||44.61%||8.95%||5.13%|
|TPG Specialty Lending||60.77%||12.68%||7.41%|
Volatility and Risk
Ares Capital Corporation has a beta of 0.62, meaning that its share price is 38% less volatile than the S&P 500. Comparatively, TPG Specialty Lending has a beta of 0.71, meaning that its share price is 29% less volatile than the S&P 500.
This is a breakdown of recent ratings and price targets for Ares Capital Corporation and TPG Specialty Lending, as provided by MarketBeat.com.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|Ares Capital Corporation||0||2||7||0||2.78|
|TPG Specialty Lending||0||2||2||0||2.50|
Ares Capital Corporation presently has a consensus price target of $17.93, suggesting a potential upside of 13.72%. TPG Specialty Lending has a consensus price target of $20.25, suggesting a potential upside of 1.50%. Given Ares Capital Corporation’s stronger consensus rating and higher probable upside, equities analysts clearly believe Ares Capital Corporation is more favorable than TPG Specialty Lending.
Ares Capital Corporation pays an annual dividend of $1.52 per share and has a dividend yield of 9.6%. TPG Specialty Lending pays an annual dividend of $1.56 per share and has a dividend yield of 7.8%. Ares Capital Corporation 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. TPG Specialty Lending pays out 71.9% of its earnings in the form of a dividend.
Valuation and Earnings
This table compares Ares Capital Corporation and TPG Specialty Lending’s top-line revenue, earnings per share (EPS) and valuation.
|Gross Revenue||Price/Sales Ratio||EBITDA||Earnings Per Share||Price/Earnings Ratio|
|Ares Capital Corporation||N/A||N/A||N/A||$1.29||12.22|
|TPG Specialty Lending||N/A||N/A||N/A||$2.17||9.19|
TPG Specialty Lending is trading at a lower price-to-earnings ratio than Ares Capital Corporation, indicating that it is currently the more affordable of the two stocks.
TPG Specialty Lending beats Ares Capital Corporation on 8 of the 13 factors compared between the two stocks.
Ares Capital Corporation Company Profile
Ares Capital Corporation is a specialty finance company. The Company operates as a closed-end, 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 primarily in the United States middle-market companies. It may from time to time invest in larger or smaller (in particular, for investments in early-stage and/or venture capital-backed) companies. It invests primarily in first lien senior secured loans (including unitranche loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position), second lien senior secured loans, and mezzanine debt, which in some cases includes an equity component. It invests in various industries, such as automotive services, business services, consumer products, and containers and packaging. Ares Capital Management LLC serves as its investment advisor.
TPG Specialty Lending Company Profile
TPG Specialty Lending, Inc. is an externally managed, closed-end, non-diversified management investment company. The Company is a specialty finance company focused on lending to middle-market companies. It seeks to generate current income primarily in the United States-domiciled middle-market companies through direct originations of senior secured loans and originations of mezzanine and unsecured loans and investments in corporate bonds and equity securities. The Company invests in first-lien debt, second-lien debt, mezzanine and unsecured debt and equity and other investments. Its first-lien debt may include standalone first-lien loans; last out first-lien loans; unitranche loans and secured corporate bonds. Its second-lien debt may include secured loans and secured corporate bonds, with a secondary priority behind first-lien debt. As of December 31, 2016, the Company’s portfolio was invested across 19 different industries. The Company’s investment advisor is TSL Advisers, LLC.
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