WhiteHorse Finance (NASDAQ: WHF) and Eagle Point Credit (NYSE:ECC) are both small-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their risk, institutional ownership, analyst recommendations, earnings, profitability, valuation and dividends.

Risk & Volatility

WhiteHorse Finance has a beta of 0.77, meaning that its share price is 23% less volatile than the S&P 500. Comparatively, Eagle Point Credit has a beta of 0.34, meaning that its share price is 66% less volatile than the S&P 500.

Institutional and Insider Ownership

9.6% of WhiteHorse Finance shares are held by institutional investors. Comparatively, 58.3% of Eagle Point Credit shares are held by institutional investors. 1.4% of WhiteHorse Finance shares are held by company insiders. Comparatively, 0.6% of Eagle Point Credit shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a summary of current ratings and target prices for WhiteHorse Finance and Eagle Point Credit, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
WhiteHorse Finance 0 0 1 0 3.00
Eagle Point Credit 0 0 4 0 3.00

WhiteHorse Finance currently has a consensus target price of $15.00, suggesting a potential upside of 1.69%. Eagle Point Credit has a consensus target price of $22.83, suggesting a potential upside of 10.25%. Given Eagle Point Credit’s higher probable upside, analysts plainly believe Eagle Point Credit is more favorable than WhiteHorse Finance.

Valuation and Earnings

This table compares WhiteHorse Finance and Eagle Point Credit’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
WhiteHorse Finance N/A N/A N/A $1.88 7.85
Eagle Point Credit N/A N/A N/A $5.20 3.98

Eagle Point Credit is trading at a lower price-to-earnings ratio than WhiteHorse Finance, indicating that it is currently the more affordable of the two stocks.

Dividends

WhiteHorse Finance pays an annual dividend of $1.42 per share and has a dividend yield of 9.6%. Eagle Point Credit pays an annual dividend of $2.40 per share and has a dividend yield of 11.6%. WhiteHorse Finance pays out 75.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Eagle Point Credit pays out 46.2% of its earnings in the form of a dividend. Eagle Point Credit is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares WhiteHorse Finance and Eagle Point Credit’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
WhiteHorse Finance 62.57% 10.57% 5.99%
Eagle Point Credit 134.32% 10.56% 6.96%

Summary

Eagle Point Credit beats WhiteHorse Finance on 9 of the 12 factors compared between the two stocks.

WhiteHorse Finance Company Profile

WhiteHorse Finance, Inc. is a non-diversified, closed-end management investment company. The Company is a direct lender targeting debt investments in privately held, small-cap companies located in the United States. The Company’s investment objective is to generate attractive risk-adjusted returns primarily by originating and investing in senior secured loans, including first lien and second lien facilities, to performing small-cap companies across a range of industries that typically carry a floating interest rate based on the London Interbank Offered Rate (LIBOR) and have a term of 3 to 6 years. The Company may also make investments at other levels of a company’s capital structure, including mezzanine loans or equity interests. The Company also may receive warrants to purchase common stock in connection with its debt investments. Its investment advisor is H.I.G. WhiteHorse Advisers, LLC.

Eagle Point Credit Company Profile

Eagle Point Credit Company Inc. is a non-diversified, closed-end management investment company. The Company’s primary investment objective is to generate high current income, with a secondary objective to generate capital appreciation. The Company primarily invests in equity and junior debt tranches of collateralized loan obligations (CLOs) that are collateralized by a portfolio consisting primarily of the below investment grade United States senior secured loans. It may also invest in other securities and instruments related to these investments. The Company’s portfolio includes its investments in various industries, such as business equipment and services; healthcare; electronics/electrical; leisure goods/activities/movies; retailers (except food and drug); chemicals and plastics; telecommunications; financial intermediaries, and utilities. The Company’s advisor is Eagle Point Credit Management LLC.

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