Contrasting OFS Credit (NASDAQ:OCCI) & Prospect Capital (NASDAQ:PSEC)

OFS Credit (NASDAQ:OCCI) and Prospect Capital (NASDAQ:PSEC) are both small-cap finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their risk, dividends, earnings, valuation, institutional ownership, profitability and analyst recommendations.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for OFS Credit and Prospect Capital, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
OFS Credit	0	0	0	0	0.00
Prospect Capital	1	0	0	0	1.00

Prospect Capital has a consensus price target of $3.00, indicating a potential downside of 5.06%. Given Prospect Capital’s stronger consensus rating and higher probable upside, analysts plainly believe Prospect Capital is more favorable than OFS Credit.

Dividends

OFS Credit pays an annual dividend of $1.37 per share and has a dividend yield of 22.7%. Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 17.1%. OFS Credit pays out 805.9% 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 -62.8% of its earnings in the form of a dividend.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
OFS Credit	N/A	N/A	N/A
Prospect Capital	-36.07%	12.43%	5.83%

Risk and Volatility

OFS Credit has a beta of 0.78, suggesting that its share price is 22% less volatile than the S&P 500. Comparatively, Prospect Capital has a beta of 0.85, suggesting that its share price is 15% less volatile than the S&P 500.

Valuation & Earnings

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
OFS Credit	$32.55 million	2.92	$2.68 million	$0.17	35.47
Prospect Capital	$861.66 million	1.63	$262.83 million	($0.86)	-3.67

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

Institutional and Insider Ownership

23.8% of OFS Credit shares are held by institutional investors. Comparatively, 9.1% of Prospect Capital shares are held by institutional investors. 2.8% of OFS Credit shares are held by insiders. Comparatively, 28.3% of Prospect Capital shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Summary

Prospect Capital beats OFS Credit on 9 of the 15 factors compared between the two stocks.

About OFS Credit

OFS Credit Company, Inc. is a fund of OFS Advisor.

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.