FS KKR Capital (NYSE:FSK) vs. OFS Capital (NASDAQ:OFS) Critical Review

OFS Capital (NASDAQ:OFS) and FS KKR Capital (NYSE:FSK) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their risk, valuation, profitability, earnings, analyst recommendations, institutional ownership and dividends.

Dividends

OFS Capital pays an annual dividend of $1.36 per share and has a dividend yield of 27.0%. FS KKR Capital pays an annual dividend of $2.56 per share and has a dividend yield of 16.6%. OFS Capital pays out 566.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. FS KKR Capital pays out 263.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital has increased 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.

Profitability

This table compares OFS Capital and FS KKR Capital’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%
FS KKR Capital	17.24%	5.63%	2.49%

Insider and Institutional Ownership

10.8% of OFS Capital shares are owned by institutional investors. Comparatively, 36.3% of FS KKR Capital shares are owned by institutional investors. 0.5% of OFS Capital shares are owned by company insiders. Comparatively, 0.2% of FS KKR Capital shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Valuation & Earnings

This table compares OFS Capital and FS KKR Capital”s top-line revenue, earnings per share (EPS) 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	20.96
FS KKR Capital	$1.72 billion	N/A	$585.00 million	$0.97	15.91

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

Volatility and Risk

OFS Capital has a beta of 0.87, suggesting that its share price is 13% less volatile than the S&P 500. Comparatively, FS KKR Capital has a beta of 0.82, suggesting that its share price is 18% less volatile than the S&P 500.

Analyst Ratings

This is a breakdown of current recommendations for OFS Capital and FS KKR Capital, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
OFS Capital	0	2	0	0	2.00
FS KKR Capital	1	7	0	0	1.88

OFS Capital presently has a consensus target price of $7.00, indicating a potential upside of 39.17%. FS KKR Capital has a consensus target price of $17.50, indicating a potential upside of 13.38%. Given OFS Capital’s stronger consensus rating and higher probable upside, analysts plainly believe OFS Capital is more favorable than FS KKR Capital.

Summary

OFS Capital beats FS KKR Capital on 9 of the 15 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 FS KKR Capital

FS KKR Capital Corp. is a business development company specializing in investments in debt securities. It provides customized credit solutions to private middle market U.S. companies. It invest primarily in the senior secured debt and, to a lesser extent, the subordinated debt of private middle market U.S. companies. It seeks to purchase interests in loans through secondary market transactions or directly from the target companies as primary market investments. It also seeks to invest in first lien senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans, or mezzanine loans. In connection with the debt investments, the firm also receives equity interests such as warrants or options as additional consideration. It also seek to purchase minority interests in the form of common or preferred equity in our target companies, either in conjunction with one of the debt investments or through a co-investment with a financial sponsor. Additionally, on an opportunistic basis, the fund may also invest in corporate bonds and similar debt securities. The fund does not seek to invest in start-up companies, turnaround situations, or companies with speculative business plans. It seeks to invest in small and middle-market companies based in United States. The fund seeks to invest in firms with annual revenue between $10 million to $2.5 billion. It focus on providing customized one-stop credit solutions to private upper middle market companies with annual EBITDA of $50 million to $100 million at the time of investment. It seeks to exit from securities by selling them in a privately negotiated over- the- counter market. For any investments that are not able to be sold within the secondary market, the firm seeks to exit such investments through repayment, an initial public offering of equity securities, merger, sale or recapitalization.