Analyzing Invesco (NYSE:IVZ) & Prospect Capital (NASDAQ:PSEC)

Invesco (NYSE:IVZ) and Prospect Capital (NASDAQ:PSEC) are both finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their profitability, dividends, institutional ownership, earnings, analyst recommendations, risk and valuation.

Risk and Volatility

Invesco has a beta of 1.66, meaning that its stock price is 66% more volatile than the S&P 500. Comparatively, Prospect Capital has a beta of 0.85, meaning that its stock price is 15% less volatile than the S&P 500.

Analyst Ratings

This is a breakdown of current ratings and recommmendations for Invesco and Prospect Capital, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Invesco	0	11	5	1	2.41
Prospect Capital	2	0	0	0	1.00

Invesco presently has a consensus target price of $23.63, indicating a potential downside of 6.20%. Prospect Capital has a consensus target price of $2.50, indicating a potential downside of 6.37%. Given Invesco’s stronger consensus rating and higher possible upside, analysts plainly believe Invesco is more favorable than Prospect Capital.

Dividends

Invesco pays an annual dividend of $0.84 per share and has a dividend yield of 3.3%. Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 20.2%. Invesco pays out 57.1% of its earnings in the form of a dividend. Prospect Capital pays out -62.8% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Invesco has raised its dividend for 5 consecutive years. Prospect Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Valuation and Earnings

This table compares Invesco and Prospect Capital”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Invesco	$6.07 billion	1.85	$774.80 million	$1.47	17.14
Prospect Capital	$719.44 million	1.75	-$469.92 million	($0.86)	-3.10

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

Insider and Institutional Ownership

66.1% of Invesco shares are owned by institutional investors. Comparatively, 9.1% of Prospect Capital shares are owned by institutional investors. 1.2% of Invesco shares are owned by insiders. Comparatively, 28.0% of Prospect Capital shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Invesco	14.15%	9.11%	3.69%
Prospect Capital	-42.50%	12.29%	5.63%

Summary

Invesco beats Prospect Capital on 13 of the 18 factors compared between the two stocks.

About Invesco

Invesco Ltd. is a publicly owned investment manager. The firm provides its services to retail clients, institutional clients, high-net worth clients, public entities, corporations, unions, non-profit organizations, endowments, foundations, pension funds, financial institutions, and sovereign wealth funds. It manages separate client-focused equity and fixed income portfolios. The firm also launches equity, fixed income, commodity, multi-asset, and balanced mutual funds for its clients. It launches equity, fixed income, multi-asset, and balanced exchange-traded funds. The firm also launches and manages private funds. It invests in the public equity and fixed income markets across the globe. The firm also invests in alternative markets, such as commodities and currencies. For the equity portion of its portfolio, it invests in growth and value stocks of large-cap, mid-cap, and small-cap companies. For the fixed income portion of its portfolio, the firm invests in convertibles, government bonds, municipal bonds, treasury securities, and cash. It also invests in short term and intermediate term bonds, investment grade and high yield bonds, taxable and tax-free bonds, senior secured loans, and structured securities such as asset-backed securities, mortgage-backed securities, and commercial mortgage-backed securities. The firm employs absolute return, global macro, and long/short strategies. It employs quantitative analysis to make its investments. The firm was formerly known as Invesco Plc, AMVESCAP plc, Amvesco plc, Invesco PLC, Invesco MIM, and H. Lotery & Co. Ltd. Invesco Ltd. was founded in 1935 and is based in Atlanta, Georgia with an additional office in Hamilton, Bermuda.

About Prospect Capital

Prospect Capital Corporation is a business development company. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth, leveraged buyouts, refinancing, acquisitions, recapitalizations, turnaround, growth capital, development, capital expenditures and subordinated debt tranches of collateralized loan obligations, cash flow term loans, market place lending and bridge transactions. It also makes real estate investments particularly in multi-family residential real estate asset class. The fund makes secured debt, senior debt, senior and secured term loans, unitranche debt, first-lien and second lien, private debt, private equity, mezzanine debt, and equity investments in private and microcap public businesses. It focuses on both primary origination and secondary loans/portfolios and invests in situations like debt financings for private equity sponsors, acquisitions, dividend recapitalizations, growth financings, bridge loans, cash flow term loans, real estate financings/investments. It also focuses on investing in small-sized and medium-sized private companies rather than large public companies. The fund typically invests across all industry sectors, with a particular expertise in the energy and industrial sectors. It invests in aerospace and defense, chemicals, conglomerate services, consumer services, ecological, electronics, financial services, machinery, manufacturing, media, pharmaceuticals, retail, software, specialty minerals, textiles and leather, transportation, oil and gas production, coal production, materials, industrials, consumer discretionary, information technology, utilities, pipeline, storage, power generation and distribution, renewable and clean energy, oilfield services, healthcare, food and beverage, education, business services, and other select sectors. It prefers to invest in the United States and Canada. The fund seeks to invest between $10 million to $500 million per transaction in companies with EBITDA between $5 million and $150 million, sales value between $25 million and $500 million, and enterprise value between $5 million and $1000 million. It fund also co-invests for larger deals. The fund seeks control acquisitions by providing multiple levels of the capital structure. The fund focuses on sole, agented, club, or syndicated deals.