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

Institutional and Insider Ownership

15.7% of Prospect Capital shares are owned by institutional investors. Comparatively, 49.7% of TCP Capital shares are owned by institutional investors. 7.1% of Prospect Capital shares are owned by insiders. Comparatively, 0.6% of TCP Capital shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Prospect Capital and TCP Capital, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Prospect Capital 1 3 0 0 1.75
TCP Capital 0 0 5 0 3.00

Prospect Capital currently has a consensus price target of $6.17, suggesting a potential downside of 7.82%. TCP Capital has a consensus price target of $18.00, suggesting a potential upside of 14.50%. Given TCP Capital’s stronger consensus rating and higher possible upside, analysts clearly believe TCP Capital is more favorable than Prospect Capital.

Profitability

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

Net Margins Return on Equity Return on Assets
Prospect Capital 27.00% 8.63% 4.75%
TCP Capital 49.53% 12.17% 6.82%

Volatility & Risk

Prospect Capital has a beta of 0.55, meaning that its share price is 45% less volatile than the S&P 500. Comparatively, TCP Capital has a beta of 0.71, meaning that its share price is 29% less volatile than the S&P 500.

Dividends

Prospect Capital pays an annual dividend of $0.72 per share and has a dividend yield of 10.8%. TCP Capital pays an annual dividend of $1.44 per share and has a dividend yield of 9.2%. Prospect Capital pays out 141.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. TCP Capital pays out 102.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Earnings & Valuation

This table compares Prospect Capital and TCP Capital’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Prospect Capital $701.05 million 3.44 $252.90 million $0.51 13.12
TCP Capital $148.18 million 6.24 $95.36 million $1.41 11.15

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

Summary

TCP Capital beats Prospect Capital on 12 of the 16 factors compared between the two stocks.

About Prospect Capital

Prospect Capital Corporation is a financial services company. The Company primarily lends to and invests in middle market privately held companies. The Company is a closed-end investment company. Its investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. The Company invests primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. The Company makes investments, including lending in private equity sponsored transactions, lending directly to companies not owned by private equity firms, control investments in corporate operating companies, control investments in financial companies, investments in structured credit, real estate investments, investments in syndicated debt, aircraft leasing and online lending. The Company is managed by its investment advisor, Prospect Capital Management L.P.

About TCP Capital

TCP Capital Corp. is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objective is to achieve high total returns through current income and capital appreciation, with an emphasis on principal protection. It invests in the debt of middle-market companies, as well as small businesses, including senior secured loans, junior loans, mezzanine debt and bonds. Its investments may include an equity component and may make equity investments directly. It intends to focus on privately negotiated investments in debt of middle-market companies. It may make investments of all kinds and at all levels of the capital structure, including in equity interests, such as preferred or common stock and warrants or options received in connection with its debt investments. As of December 31, 2016, its investment portfolio consisted of 90 portfolio companies. Tennenbaum Capital Partners, LLC is the investment manager and advisor of the Company.

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