Head to Head Review: Prospect Capital (NASDAQ:PSEC) & Eagle Point Credit (NYSE:ECC)

Eagle Point Credit (NYSE:ECC) and Prospect Capital (NASDAQ:PSEC) are both small-cap finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their institutional ownership, valuation, risk, earnings, dividends, profitability and analyst recommendations.

Valuation and Earnings

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Eagle Point Credit	$179.77 million	2.59	$85.49 million	$0.19	19.39
Prospect Capital	$719.44 million	1.68	-$469.92 million	($0.81)	-3.07

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Eagle Point Credit	12.33%	13.47%	8.14%
Prospect Capital	-39.56%	11.91%	5.39%

Volatility and Risk

Eagle Point Credit has a beta of 0.32, indicating that its stock price is 68% less volatile than the S&P 500. Comparatively, Prospect Capital has a beta of 0.87, indicating that its stock price is 13% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Eagle Point Credit and Prospect Capital, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Eagle Point Credit	1	2	3	0	2.33
Prospect Capital	2	0	0	0	1.00

Eagle Point Credit presently has a consensus price target of $6.67, indicating a potential upside of 80.91%. Prospect Capital has a consensus price target of $2.50, indicating a potential upside of 0.40%. Given Eagle Point Credit’s stronger consensus rating and higher possible upside, equities research analysts plainly believe Eagle Point Credit is more favorable than Prospect Capital.

Institutional and Insider Ownership

19.5% of Eagle Point Credit shares are owned by institutional investors. Comparatively, 9.1% of Prospect Capital shares are owned by institutional investors. 0.2% of Eagle Point Credit shares are owned by company insiders. Comparatively, 0.0% of Prospect Capital shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Dividends

Eagle Point Credit pays an annual dividend of $1.68 per share and has a dividend yield of 45.6%. Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 21.7%. Eagle Point Credit pays out 884.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Prospect Capital pays out -66.7% of its earnings in the form of a dividend.

Summary

Eagle Point Credit beats Prospect Capital on 13 of the 16 factors compared between the two stocks.

About Eagle Point Credit

Eagle Point Credit Company Inc. is a closed ended fund launched and managed by Eagle Point Credit Management LLC. It invests in fixed income markets of the United States. The fund invests equity and junior debt tranches of collateralized loan obligations consisting primarily of below investment grade U.S. senior secured loans. Eagle Point Credit Company Inc. was formed on March 24, 2014 and is domiciled in the United States.

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.