Analyzing Prospect Capital (NASDAQ:PSEC) and ONEX (OTCMKTS:ONEXF)

Prospect Capital (NASDAQ:PSEC) and ONEX (OTCMKTS:ONEXF) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their dividends, analyst recommendations, risk, valuation, profitability, institutional ownership and earnings.

Volatility and Risk

Prospect Capital has a beta of 0.87, indicating that its stock price is 13% less volatile than the S&P 500. Comparatively, ONEX has a beta of 1.24, indicating that its stock price is 24% more volatile than the S&P 500.

Valuation & Earnings

This table compares Prospect Capital and ONEX”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Prospect Capital	$719.44 million	1.87	-$469.92 million	($0.81)	-3.42
ONEX	$899.00 million	5.91	$617.00 million	$8.87	8.73

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

Analyst Recommendations

This is a breakdown of current ratings for Prospect Capital and ONEX, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Prospect Capital	2	0	0	0	1.00
ONEX	0	1	2	0	2.67

Prospect Capital presently has a consensus target price of $2.50, indicating a potential downside of 9.75%. Given Prospect Capital’s higher probable upside, equities analysts plainly believe Prospect Capital is more favorable than ONEX.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Prospect Capital	-39.56%	11.91%	5.39%
ONEX	68.63%	7.21%	4.58%

Dividends

Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 19.5%. ONEX pays an annual dividend of $0.29 per share and has a dividend yield of 0.4%. Prospect Capital pays out -66.7% of its earnings in the form of a dividend. ONEX pays out 3.3% 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.

Insider & Institutional Ownership

9.1% of Prospect Capital shares are held by institutional investors. Comparatively, 0.7% of ONEX shares are held by institutional investors. 28.0% of Prospect Capital shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Summary

ONEX beats Prospect Capital on 9 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 ONEX

Onex Corporation is a private equity firm specializing in acquisitions and platform acquisitions. The firm makes investments in buyouts, large- middle market, large-cap, mid-cap, and small-cap market and distressed companies. It also invests in recapitalization, growth capital, corporate carve-outs of subsidiaries and mission-critical supply divisions from multinational corporations, operational restructurings of undervalued businesses, and builds up. The firm seeks to invest in technology, electronics manufacturing services, industrial, aerospace, healthcare, retail, restaurants, industrials products, customer care services, metal services, building products, entertainment, gaming, cabinetry products, commercial vehicles, commercial and investment banking, financial services, commercial and multi-unit residential real estate. It invests in global businesses headquartered in North America, including United States and Canada, or Europe. The firm seeks to invest between $125 million and $1 billion in companies that have minimum revenues of $300 million. It does not consider size if the company is in an industry in which the firm already has presence. The firm seeks to make direct as well as co-investments through managed private equity, real estate and credit funds. It seeks to acquire a control position in its portfolio companies. Onex Corporation was founded in 1984 and is based in Toronto, Canada with additional offices in New York, New York; Englewood Cliffs, New Jersey; Boston, Massachusetts and London, United Kingdom.