Critical Review: WhiteHorse Finance (NASDAQ:WHF) & Morgan Stanley Direct Lending Fund (NYSE:MSDL)

WhiteHorse Finance (NASDAQ:WHF) and Morgan Stanley Direct Lending Fund (NYSE:MSDL) are both small-cap finance companies, but which is the better business? We will contrast the two businesses based on the strength of their analyst recommendations, profitability, institutional ownership, risk, dividends, valuation and earnings.

Insider and Institutional Ownership

13.2% of WhiteHorse Finance shares are owned by institutional investors. 2.5% of WhiteHorse Finance shares are owned by company insiders. Comparatively, 0.2% of Morgan Stanley Direct Lending Fund shares are owned by company 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.

Dividends

WhiteHorse Finance pays an annual dividend of $1.54 per share and has a dividend yield of 22.8%. Morgan Stanley Direct Lending Fund pays an annual dividend of $2.00 per share and has a dividend yield of 12.1%. WhiteHorse Finance pays out 1,026.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Morgan Stanley Direct Lending Fund pays out 103.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. WhiteHorse Finance has raised its dividend for 3 consecutive years. WhiteHorse Finance is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility & Risk

WhiteHorse Finance has a beta of 0.75, meaning that its share price is 25% less volatile than the S&P 500. Comparatively, Morgan Stanley Direct Lending Fund has a beta of 0.25, meaning that its share price is 75% less volatile than the S&P 500.

Profitability

This table compares WhiteHorse Finance and Morgan Stanley Direct Lending Fund’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
WhiteHorse Finance	4.36%	10.72%	4.51%
Morgan Stanley Direct Lending Fund	42.65%	11.24%	5.28%

Analyst Ratings

This is a summary of recent ratings and recommmendations for WhiteHorse Finance and Morgan Stanley Direct Lending Fund, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
WhiteHorse Finance	3	4	0	0	1.57
Morgan Stanley Direct Lending Fund	1	3	3	0	2.29

WhiteHorse Finance currently has a consensus price target of $9.17, indicating a potential upside of 36.00%. Morgan Stanley Direct Lending Fund has a consensus price target of $18.58, indicating a potential upside of 12.15%. Given WhiteHorse Finance’s higher probable upside, analysts clearly believe WhiteHorse Finance is more favorable than Morgan Stanley Direct Lending Fund.

Valuation and Earnings

This table compares WhiteHorse Finance and Morgan Stanley Direct Lending Fund”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
WhiteHorse Finance	$92.82 million	1.69	$10.85 million	$0.15	44.93
Morgan Stanley Direct Lending Fund	$172.27 million	8.35	$215.56 million	$1.93	8.59

Morgan Stanley Direct Lending Fund has higher revenue and earnings than WhiteHorse Finance. Morgan Stanley Direct Lending Fund is trading at a lower price-to-earnings ratio than WhiteHorse Finance, indicating that it is currently the more affordable of the two stocks.

Summary

Morgan Stanley Direct Lending Fund beats WhiteHorse Finance on 10 of the 17 factors compared between the two stocks.

About WhiteHorse Finance

WhiteHorse Finance, Inc. is business development company, non-diversified, closed end management company specializing in originating senior secured loans, lower middle market, growth capital industries. It invests in broadline retail, office services and supplies, building products, health care services, health care supplies, research and consulting services, application software, home furnishings, specialized consumer services, data processing and outsourced services, leisure facilities, cable, and satellite. It prefers to invest in United States. It typically invests between $5 million to $25 million in companies having enterprise value of between $50 million and $350 million.

About Morgan Stanley Direct Lending Fund

Morgan Stanley Direct Lending Fund is a business development company. It is a non-diversified, externally managed specialty finance company focused on lending to middle-market companies. Morgan Stanley Direct Lending Fund is based in NEW YORK.