Garrison Capital (NASDAQ: GARS) and Legg Mason (NYSE:LM) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their profitability, dividends, institutional ownership, earnings, valuation, risk and analyst recommendations.

Insider & Institutional Ownership

21.6% of Garrison Capital shares are owned by institutional investors. Comparatively, 83.2% of Legg Mason shares are owned by institutional investors. 5.8% of Garrison Capital shares are owned by insiders. Comparatively, 12.7% of Legg Mason shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Valuation & Earnings

This table compares Garrison Capital and Legg Mason’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Garrison Capital N/A N/A N/A N/A N/A
Legg Mason $2.98 billion 1.20 $572.31 million $2.56 14.91

Legg Mason has higher revenue and earnings than Garrison Capital.

Dividends

Garrison Capital pays an annual dividend of $1.12 per share and has a dividend yield of 13.5%. Legg Mason pays an annual dividend of $1.12 per share and has a dividend yield of 2.9%. Legg Mason pays out 43.8% of its earnings in the form of a dividend. Garrison Capital has increased its dividend for 7 consecutive years. Garrison Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Garrison Capital and Legg Mason’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Garrison Capital -0.38% 8.33% 3.97%
Legg Mason 8.46% 7.15% 3.49%

Analyst Recommendations

This is a breakdown of current ratings and target prices for Garrison Capital and Legg Mason, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Garrison Capital 0 5 1 0 2.17
Legg Mason 3 2 5 0 2.20

Garrison Capital currently has a consensus target price of $10.17, indicating a potential upside of 22.20%. Legg Mason has a consensus target price of $43.11, indicating a potential upside of 12.92%. Given Garrison Capital’s higher possible upside, equities research analysts plainly believe Garrison Capital is more favorable than Legg Mason.

Risk and Volatility

Garrison Capital has a beta of 0.24, meaning that its stock price is 76% less volatile than the S&P 500. Comparatively, Legg Mason has a beta of 2.27, meaning that its stock price is 127% more volatile than the S&P 500.

Summary

Legg Mason beats Garrison Capital on 8 of the 14 factors compared between the two stocks.

Garrison Capital Company Profile

Garrison Capital Inc. is a managed, closed-end, non-diversified management investment company. The Company’s investment objective is to generate current income and capital appreciation by making investments primarily in debt securities and loans of the United States-based middle-market companies, which it defines as those having annual earnings before interest, taxes and depreciation, or EBITDA, of certain amount. It invests or provides direct lending in first lien senior secured loans, second lien senior secured loans, one-stop senior secured loans or unitranche loans, subordinated or mezzanine loans, unsecured consumer loans and to a lesser extent, selected equity co-investments in middle-market companies. The Company intends to generate risk-adjusted net returns by assembling a portfolio of investments. The Company’s investment advisor is Garrison Capital Advisers LLC.

Legg Mason Company Profile

Legg Mason, Inc. is a holding company. The Company and its subsidiaries are principally engaged in providing asset management and related financial services to individuals, institutions, corporations and municipalities. The Company operates through Global Asset Management segment. Global Asset Management provides investment advisory services to institutional and individual clients and to the Company-sponsored investment funds. The Company, through its subsidiaries, provides investment management and related services to institutional and individual clients, Company-sponsored investment funds and retail separately managed account programs. It offers its products and services directly and through various financial intermediaries. It has operations principally in the United States and the United Kingdom and also has offices in Australia, Bahamas, Brazil, Canada, Chile, China, Dubai, France, Germany, Italy, Japan, Luxembourg, Poland, Singapore, Spain, Switzerland and Taiwan.

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