Analyzing Prospect Capital (NASDAQ:PSEC) & Affiliated Managers Group (NYSE:AMG)

Prospect Capital (NASDAQ:PSEC) and Affiliated Managers Group (NYSE:AMG) are both finance companies, but which is the superior stock? We will contrast the two businesses based on the strength of their earnings, profitability, analyst recommendations, valuation, dividends, risk and institutional ownership.

Dividends

Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 19.8%. Affiliated Managers Group pays an annual dividend of $0.04 per share and has a dividend yield of 0.0%. Prospect Capital pays out -40.3% of its earnings in the form of a dividend. Affiliated Managers Group pays out 0.3% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Prospect Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Recommendations

This is a summary of current ratings for Prospect Capital and Affiliated Managers Group, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Prospect Capital	2	0	0	0	1.00
Affiliated Managers Group	0	1	7	0	2.88

Prospect Capital presently has a consensus target price of $2.50, suggesting a potential downside of 8.42%. Affiliated Managers Group has a consensus target price of $272.60, suggesting a potential upside of 15.56%. Given Affiliated Managers Group’s stronger consensus rating and higher probable upside, analysts clearly believe Affiliated Managers Group is more favorable than Prospect Capital.

Insider & Institutional Ownership

9.1% of Prospect Capital shares are held by institutional investors. Comparatively, 95.3% of Affiliated Managers Group shares are held by institutional investors. 28.0% of Prospect Capital shares are held by insiders. Comparatively, 4.2% of Affiliated Managers Group shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.

Earnings & Valuation

This table compares Prospect Capital and Affiliated Managers Group”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Prospect Capital	$719.44 million	1.76	-$469.92 million	($1.34)	-2.04
Affiliated Managers Group	$2.04 billion	3.28	$511.60 million	$13.70	17.22

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

Volatility & Risk

Prospect Capital has a beta of 0.85, indicating that its stock price is 15% less volatile than the S&P 500. Comparatively, Affiliated Managers Group has a beta of 1.21, indicating that its stock price is 21% more volatile than the S&P 500.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Prospect Capital	-69.68%	12.14%	5.59%
Affiliated Managers Group	21.79%	16.11%	7.68%

Summary

Affiliated Managers Group beats Prospect Capital on 13 of the 16 factors compared between the two stocks.

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.

About Affiliated Managers Group

Affiliated Managers Group, Inc., through its affiliates, operates as an investment management company providing investment management services to mutual funds, institutional clients,retails and high net worth individuals in the United States. It provides advisory or sub-advisory services to mutual funds. These funds are distributed to retail, high net worth and institutional clients directly and through intermediaries, including independent investment advisors, retirement plan sponsors, broker-dealers, major fund marketplaces, and bank trust departments. The company also offers investment products in various investment styles in the institutional distribution channel, including small, small/mid, mid, and large capitalization value and growth equity, and emerging markets. In addition, it offers quantitative, alternative, and fixed income products, and manages assets for foundations and endowments, defined benefit, and defined contribution plans for corporations and municipalities. Affiliated Managers Group provides investment management or customized investment counseling and fiduciary services. Affiliated Managers Group, Inc. was formed in 1993 and is based in West Palm Beach, Florida with additional offices in Prides Crossing, Massachusetts; Stamford, Connecticut; London, United Kingdom; Dubai, United Arab Emirates; Sydney, Australia; Hong Kong; Tokyo, Japan, Zurich, Switzerland and Delaware.