Analyzing Horizon Technology Finance (HRZN) and Prospect Capital (PSEC)

Horizon Technology Finance (NASDAQ: HRZN) and Prospect Capital (NASDAQ:PSEC) are both financials companies, but which is the superior business? We will compare the two companies based on the strength of their risk, valuation, analyst recommendations, dividends, earnings, institutional ownership and profitability.

Analyst Ratings

This is a breakdown of recent recommendations for Horizon Technology Finance and Prospect Capital, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Horizon Technology Finance 2 3 1 0 1.83
Prospect Capital 1 3 0 0 1.75

Horizon Technology Finance presently has a consensus target price of $10.75, indicating a potential downside of 0.19%. Prospect Capital has a consensus target price of $6.50, indicating a potential upside of 1.72%. Given Prospect Capital’s higher possible upside, analysts plainly believe Prospect Capital is more favorable than Horizon Technology Finance.

Profitability

This table compares Horizon Technology Finance and Prospect Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Horizon Technology Finance 24.46% 9.96% 6.31%
Prospect Capital 27.00% 8.63% 4.75%

Dividends

Horizon Technology Finance pays an annual dividend of $1.20 per share and has a dividend yield of 11.1%. Prospect Capital pays an annual dividend of $0.72 per share and has a dividend yield of 11.3%. Horizon Technology Finance pays out 210.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Prospect Capital pays out 141.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Prospect Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk & Volatility

Horizon Technology Finance has a beta of 0.81, suggesting that its share price is 19% less volatile than the S&P 500. Comparatively, Prospect Capital has a beta of 0.48, suggesting that its share price is 52% less volatile than the S&P 500.

Earnings & Valuation

This table compares Horizon Technology Finance and Prospect Capital’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Horizon Technology Finance $32.98 million 3.76 -$4.91 million $0.57 18.89
Prospect Capital $701.05 million 3.28 $252.90 million $0.51 12.53

Prospect Capital has higher revenue and earnings than Horizon Technology Finance. Prospect Capital is trading at a lower price-to-earnings ratio than Horizon Technology Finance, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

17.1% of Horizon Technology Finance shares are held by institutional investors. Comparatively, 14.6% of Prospect Capital shares are held by institutional investors. 1.3% of Horizon Technology Finance shares are held by insiders. Comparatively, 7.1% of Prospect Capital shares are held by 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.

Summary

Horizon Technology Finance beats Prospect Capital on 9 of the 16 factors compared between the two stocks.

About Horizon Technology Finance

Horizon Technology Finance Corporation is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objective is to maximize investment portfolio’s total return by generating current income from the debt investments it makes and capital appreciation from the warrants it receives when making such debt investments. It lends to and invests in development-stage companies in the technology, life science, healthcare information and services and cleantech industries (collectively Target Industries). It is focused on making secured debt investments (Venture Loans) to venture capital backed companies in its Target Industries. As of December 31, 2016, its debt investment portfolio consisted of 44 debt investments. As of December 31, 2016, the Company held warrants to purchase stock, predominantly preferred stock, in 78 portfolio companies, equity positions in five portfolio companies and success fee arrangements in 11 portfolio companies.

About Prospect Capital

Prospect Capital Corporation is a financial services company. The Company primarily lends to and invests in middle market privately held companies. The Company is a closed-end investment company. Its investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. The Company invests primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. The Company makes investments, including lending in private equity sponsored transactions, lending directly to companies not owned by private equity firms, control investments in corporate operating companies, control investments in financial companies, investments in structured credit, real estate investments, investments in syndicated debt, aircraft leasing and online lending. The Company is managed by its investment advisor, Prospect Capital Management L.P.

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