OFS Capital (NASDAQ:OFS) vs. Blackstone Secured Lending Fund (NYSE:BXSL) Critical Analysis

OFS Capital (NASDAQ:OFS) and Blackstone Secured Lending Fund (NYSE:BXSL) are both finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their profitability, risk, earnings, dividends, valuation, analyst recommendations and institutional ownership.

Risk & Volatility

OFS Capital has a beta of 0.85, meaning that its share price is 15% less volatile than the S&P 500. Comparatively, Blackstone Secured Lending Fund has a beta of 0.41, meaning that its share price is 59% less volatile than the S&P 500.

Institutional and Insider Ownership

10.8% of OFS Capital shares are held by institutional investors. Comparatively, 36.5% of Blackstone Secured Lending Fund shares are held by institutional investors. 0.5% of OFS Capital shares are held by insiders. Comparatively, 0.1% of Blackstone Secured Lending Fund shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Dividends

OFS Capital pays an annual dividend of $0.68 per share and has a dividend yield of 16.3%. Blackstone Secured Lending Fund pays an annual dividend of $3.08 per share and has a dividend yield of 12.3%. OFS Capital pays out 283.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Blackstone Secured Lending Fund pays out 115.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital has raised its dividend for 3 consecutive years. OFS Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a summary of recent recommendations and price targets for OFS Capital and Blackstone Secured Lending Fund, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
OFS Capital	1	1	0	0	1.50
Blackstone Secured Lending Fund	1	2	6	0	2.56

OFS Capital presently has a consensus target price of $7.00, suggesting a potential upside of 68.27%. Blackstone Secured Lending Fund has a consensus target price of $29.13, suggesting a potential upside of 16.06%. Given OFS Capital’s higher possible upside, research analysts clearly believe OFS Capital is more favorable than Blackstone Secured Lending Fund.

Profitability

This table compares OFS Capital and Blackstone Secured Lending Fund’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
OFS Capital	7.52%	8.95%	3.41%
Blackstone Secured Lending Fund	42.38%	11.85%	5.32%

Earnings and Valuation

This table compares OFS Capital and Blackstone Secured Lending Fund”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
OFS Capital	$47.96 million	N/A	$28.44 million	$0.24	17.33
Blackstone Secured Lending Fund	$1.33 billion	4.37	$694.10 million	$2.66	9.43

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

Summary

Blackstone Secured Lending Fund beats OFS Capital on 10 of the 16 factors compared between the two stocks.

About OFS Capital

OFS Capital Corporation is a business development company specializing in direct and fund investments as well as add-on acquisitions. It provides flexible capital solutions primarily through debt capital and to a lesser extent, minority equity investments serving the needs of U.S.-based middle-market companies across a broad array of industries. It does not invest in operational turnarounds or start-up businesses. For direct, it specializes in debt and structured equity investments, recapitalizations and refinancing, management and leveraged buyouts, acquisition financings, ownership transition, shareholder liquidity events, growth capital, independent sponsor transactions, ESOPs, and minority investments in the lower middle market companies. It invests in the aerospace and defense, business services, consumer products and services, construction & building, durable goods, capital equipment, automotive, food and beverage, healthcare & pharmaceutical, specialty chemicals, transportation cargo and logistics, value added distribution, franchising, and industrial and niche manufacturing sectors. The firm invests in companies based in United States. It seeks to invest between $3 million and $35 million, revenues between $15 million and $300 million, annual EBITDA between $5 million and $50 million, and Enterprise value between $10 million and $500 million. The firm seeks to invest in companies with debt investment values between $5 million and $25 million. The fund uses senior secured, unitranche loans, first-lien, second lien, subordinated/ mezzanine loans, warrants, and preferred equity securities and common equity securities. It prefers to take a minority as well as majority stake in the investments made. It also co-invests with its partners for additional capital.

About Blackstone Secured Lending Fund

Blackstone Secured Lending Fund is business development company and a Delaware statutory trust formed on March 26, 2018, and structured as an externally managed, non-diversified closed-end investment Fund. On October 26, 2018, the fund elected to be regulated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). In addition, the Fund elected to be treated for U.S. federal income tax purposes, as a regulated investment company (RIC), as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). The fund also intends to continue to comply with the requirements prescribed by the Code in order to maintain tax treatment as a RIC. The fund's investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. The Fund seeks to achieve its investment objective primarily through originated loans, equity and other securities, including syndicated loans, of private U.S. companies, specifically small and middle market companies, typically in the form of first lien senior secured and unitranche loans (including first out/last out loans), and to a lesser extent, second lien, third lien, unsecured and subordinated loans and other debt and equity securities.