Critical Analysis: Prospect Capital (NASDAQ:PSEC) and AllianceBernstein (NYSE:AB)

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

Analyst Recommendations

This is a breakdown of current ratings and price targets for Prospect Capital and AllianceBernstein, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Prospect Capital	2	0	0	0	1.00
AllianceBernstein	1	4	3	0	2.25

Prospect Capital presently has a consensus price target of $2.00, suggesting a potential downside of 13.79%. AllianceBernstein has a consensus price target of $40.25, suggesting a potential upside of 6.93%. Given AllianceBernstein’s stronger consensus rating and higher possible upside, analysts clearly believe AllianceBernstein is more favorable than Prospect Capital.

Dividends

Prospect Capital pays an annual dividend of $0.42 per share and has a dividend yield of 18.1%. AllianceBernstein pays an annual dividend of $3.32 per share and has a dividend yield of 8.8%. Prospect Capital pays out -113.5% of its earnings in the form of a dividend. AllianceBernstein pays out 102.2% 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.

Earnings & Valuation

This table compares Prospect Capital and AllianceBernstein”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Prospect Capital	$7.61 million	152.70	-$469.92 million	($0.37)	-6.27
AllianceBernstein	$342.26 million	10.27	$299.84 million	$3.25	11.58

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Prospect Capital	-10.42%	12.03%	5.43%
AllianceBernstein	6.69%	23.11%	23.10%

Volatility and Risk

Prospect Capital has a beta of 0.82, suggesting that its stock price is 18% less volatile than the S&P 500. Comparatively, AllianceBernstein has a beta of 0.83, suggesting that its stock price is 17% less volatile than the S&P 500.

Institutional and Insider Ownership

9.1% of Prospect Capital shares are held by institutional investors. Comparatively, 19.3% of AllianceBernstein shares are held by institutional investors. 0.0% of Prospect Capital shares are held by insiders. Comparatively, 2.7% of AllianceBernstein shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Summary

AllianceBernstein beats Prospect Capital on 13 of the 16 factors compared between the two stocks.

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.

About AllianceBernstein

AllianceBernstein Holding L.P. is a publicly owned investment manager. The firm is a related adviser The firm manages separate client focused portfolios for its clients. The firm primarily invests in common and preferred stocks, warrants and convertible securities, government and corporate fxed-income securities, commodities, currencies, real estate-related assets and infation-protected securities. The firm employs quantitative analysis along with long-term purchases, short-term purchases, trading, short sales, margin transactions, option strategies including writing covered options, uncovered options and spread strategies to make its investments. The firm obtains external research to complement its in-house research. The firm was formerly known as Alliance Capital Management Holding LP. AllianceBernstein Holding L.P. was founded in 1967 and is based in Nashville,Tennessee.