Reviewing Stellus Capital Investment (NYSE:SCM) & FS KKR Capital (NYSE:FSK)

Stellus Capital Investment (NYSE:SCM) and FS KKR Capital (NYSE:FSK) are both finance companies, but which is the superior stock? We will compare the two companies based on the strength of their profitability, valuation, risk, analyst recommendations, earnings, dividends and institutional ownership.

Insider & Institutional Ownership

13.2% of Stellus Capital Investment shares are owned by institutional investors. Comparatively, 36.3% of FS KKR Capital shares are owned by institutional investors. 4.0% of Stellus Capital Investment shares are owned by company insiders. Comparatively, 0.3% of FS KKR Capital shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Earnings & Valuation

This table compares Stellus Capital Investment and FS KKR Capital”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Stellus Capital Investment	$104.74 million	4.01	$45.85 million	$1.45	10.20
FS KKR Capital	$315.00 million	15.88	$585.00 million	$0.78	22.90

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

Profitability

This table compares Stellus Capital Investment and FS KKR Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Stellus Capital Investment	38.24%	11.06%	4.12%
FS KKR Capital	13.24%	6.24%	2.75%

Volatility and Risk

Stellus Capital Investment 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 0.95, suggesting that its share price is 5% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of current recommendations for Stellus Capital Investment and FS KKR Capital, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Stellus Capital Investment	0	1	0	0	2.00
FS KKR Capital	2	5	0	0	1.71

Stellus Capital Investment currently has a consensus price target of $13.00, suggesting a potential downside of 12.13%. FS KKR Capital has a consensus price target of $18.42, suggesting a potential upside of 3.12%. Given FS KKR Capital’s higher probable upside, analysts clearly believe FS KKR Capital is more favorable than Stellus Capital Investment.

Dividends

Stellus Capital Investment pays an annual dividend of $1.60 per share and has a dividend yield of 10.8%. FS KKR Capital pays an annual dividend of $2.56 per share and has a dividend yield of 14.3%. Stellus Capital Investment pays out 110.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. FS KKR Capital pays out 328.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Summary

FS KKR Capital beats Stellus Capital Investment on 8 of the 15 factors compared between the two stocks.

About Stellus Capital Investment

Stellus Capital Investment Corporation is a business development company specializing in investments in private middle-market companies. It invests through first lien, second lien, unitranche, and mezzanine debt financing, often with a corresponding equity investment. The fund prefers to invest in US and Canada. The fund seeks to invest in companies with an EBITDA between $5 million and $50 million.

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.