New Mountain Finance (NASDAQ:NMFC) and Hercules Capital (NYSE:HTGC) Head-To-Head Analysis

Hercules Capital (NYSE:HTGC) and New Mountain Finance (NASDAQ:NMFC) are both finance companies, but which is the superior stock? We will compare the two companies based on the strength of their risk, valuation, profitability, earnings, dividends, analyst recommendations and institutional ownership.

Analyst Ratings

This is a breakdown of current recommendations for Hercules Capital and New Mountain Finance, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Hercules Capital	0	2	6	1	2.89
New Mountain Finance	1	6	0	0	1.86

Hercules Capital presently has a consensus target price of $20.32, indicating a potential upside of 7.78%. New Mountain Finance has a consensus target price of $10.17, indicating a potential upside of 10.27%. Given New Mountain Finance’s higher probable upside, analysts clearly believe New Mountain Finance is more favorable than Hercules Capital.

Insider & Institutional Ownership

19.7% of Hercules Capital shares are held by institutional investors. Comparatively, 32.1% of New Mountain Finance shares are held by institutional investors. 1.8% of Hercules Capital shares are held by insiders. Comparatively, 11.7% of New Mountain Finance shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Hercules Capital and New Mountain Finance’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Hercules Capital	60.05%	16.13%	8.11%
New Mountain Finance	20.84%	10.42%	4.34%

Valuation and Earnings

This table compares Hercules Capital and New Mountain Finance”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Hercules Capital	$493.59 million	6.94	$262.97 million	$1.72	10.96
New Mountain Finance	$371.67 million	2.56	$113.44 million	$0.65	14.18

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

Dividends

Hercules Capital pays an annual dividend of $1.60 per share and has a dividend yield of 8.5%. New Mountain Finance pays an annual dividend of $1.28 per share and has a dividend yield of 13.9%. Hercules Capital pays out 93.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. New Mountain Finance pays out 196.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Hercules Capital has raised its dividend for 1 consecutive years.

Risk & Volatility

Hercules Capital has a beta of 0.84, indicating that its stock price is 16% less volatile than the S&P 500. Comparatively, New Mountain Finance has a beta of 0.58, indicating that its stock price is 42% less volatile than the S&P 500.

Summary

Hercules Capital beats New Mountain Finance on 13 of the 18 factors compared between the two stocks.

About Hercules Capital

Hercules Capital, Inc. is a business development company. The firm specializing in providing venture debt, debt, senior secured loans, and growth capital to privately held venture capital-backed companies at all stages of development from startups to expansion stage including select publicly listed companies and select special opportunity lower middle market companies that require additional capital to fund acquisitions, recapitalizations and refinancing and established-stage companies. The firm provides growth capital financing solutions for capital extension; management buy-out and corporate spin-out financing solutions; company, asset specific, or intellectual property acquisition financing; convertible, subordinated and/or mezzanine loans; domestic and international corporate expansion; vendor financing; revenue acceleration by sales and marketing development, and manufacturing expansion. It provides asset-based financing with a focus on cash flow; accounts receivable facilities; equipment loans or leases; equipment acquisition; facilities build-out and/or expansion; working capital revolving lines of credit; inventory. The firm also provides bridge financing to IPO or mergers and acquisitions or technology acquisition; dividend recapitalizations and other sources of investor liquidity; cash flow financing to protect against share price volatility; competitor acquisition; pre-IPO financing for extra cash on the balance sheet; public company financing to continue asset growth and production capacity; short-term bridge financing; and strategic and intellectual property acquisition financings. It also focuses on customized financing solutions, emerging growth, mid venture, and late venture financing. The firm invests primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. The firm generally seeks to invest in companies that have been operating for at least six to 12 months prior to the date of their investment. It prefers to invest in technology, SaaS Finance, energy technology, sustainable and renewable technology, and life sciences. Within technology the firm focuses on advanced specialty materials and chemicals; communication and networking, consumer and business products; consumer products and services, digital media and consumer internet; electronics and computer hardware; enterprise software and services; gaming; healthcare services; information services; business services; media, content and information; mobile; resource management; security software; semiconductors; semiconductors and hardware; and software sector. Within energy technology, it invests in agriculture; clean technology; energy and renewable technology, fuels, and power technology; geothermal; smart grid and energy efficiency and monitoring technologies; solar; and wind. Within life sciences, the firm invests in biopharmaceuticals; biotechnology tools; diagnostics; drug discovery, drug platform, development, and delivery; medical devices and equipment; surgical devices; therapeutics; pharma services; and specialty pharmaceuticals. Within sustainable and renewables, it invests in Vehicle Technology, Energy Generation and Storage, Ag Technology, Advanced Materials, and Industry 4.0. It also invests in educational services. The firm invests primarily in United States based companies and considers investment in the West Coast, Mid-Atlantic regions, Southeast and Midwest, particularly in the areas of software, biotech, and information services. The firm prefers to invest between $5 million and $200 million in equity per transactions. It invests generally between $1 million and $40 million in companies focused primarily on business services, communications, electronics, hardware, and healthcare services. The firm invests primarily in private companies but also have investments in public companies. For equity investments, the firm seeks to represent a controlling interest in its portfolio companies which may exceed 25% of the voting securities of such companies. The firm seeks to invest a limited portion of its assets in equipment-based loans to early-stage prospective portfolio companies. These loans are generally for amounts up to $3 million but may be up to $15 million for certain energy technology venture investments. The firm allows certain debt investments have the right to convert a portion of the debt investment into equity. It also co-invests with other private equity firms. The firm seeks to exit its investments through initial public offering, a private sale of equity interest to a third party, a merger or an acquisition of the company or a purchase of the equity position by the company or one of its stockholders. The firm has structured debt with warrants which typically have maturities of between two and seven years with an average of three years; senior debt with an investment horizon of less than three years; equipment loans with an investment horizon ranging from three to four years; and equity related securities with an investment horizon ranging from three to seven years. The firm prefers to invest through its balance sheet capital. The firm formerly known as Hercules Technology Growth Capital, Inc. Hercules Capital, Inc. was founded in December 2003 and is based in San Mateo, California with additional offices in North America and Europe.

About New Mountain Finance

New Mountain Finance Corporation (Nasdaq: NMFC), a business development company is a private equity / buyouts and loan fund specializes in directly investing and lending to middle market companies in defensive growth industries. The fund prefers investing in buyout and middle market companies. It also makes investments in debt securities at all levels of the capital structure including first and second lien debt, unsecured notes, and mezzanine securities. In some cases, its investments may also include equity interests. It targets energy, engineering and consulting services, specialty chemicals and materials, trading companies and distributors, commercial printing, diversified support services, education services, environmental and facilities services, office services and supplies, media, distributors, health care services, health care facilities, application software, business services, systems software, federal services, distribution and logistics, interactive home entertainment, telecommunication services, hydroelectric power generation, electric power generation by fossil fuels, electric power generation by nuclear fuels, health care technology, and security and alarm services. The fund seeks to invest in United States of America. It seeks to invest between $10 million and $125 million per transaction. The firm invests through both primary originations and open-market secondary purchases. It invests in companies with EBITDA between $10 million and $200 million. The fund seeks a majority stake in its portfolio companies.