Financial Survey: Prospect Capital (NASDAQ:PSEC) versus Monroe Capital (NASDAQ:MRCC)

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

Profitability

This table compares Prospect Capital and Monroe Capital’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%
Monroe Capital	-9.58%	8.49%	3.58%

Dividends

Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 19.1%. Monroe Capital pays an annual dividend of $0.72 per share and has a dividend yield of 12.2%. Prospect Capital pays out -66.7% of its earnings in the form of a dividend. Monroe Capital pays out -378.9% 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.

Analyst Ratings

This is a summary of recent recommendations and price targets for Prospect Capital and Monroe Capital, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Prospect Capital	2	0	0	0	1.00
Monroe Capital	0	2	0	0	2.00

Prospect Capital presently has a consensus target price of $2.50, suggesting a potential downside of 11.66%. Monroe Capital has a consensus target price of $8.00, suggesting a potential upside of 35.36%. Given Monroe Capital’s stronger consensus rating and higher probable upside, analysts clearly believe Monroe Capital is more favorable than Prospect Capital.

Insider & Institutional Ownership

9.1% of Prospect Capital shares are held by institutional investors. 28.0% of Prospect Capital shares are held by company insiders. Comparatively, 3.8% of Monroe Capital shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Risk & Volatility

Prospect Capital has a beta of 0.89, suggesting that its share price is 11% less volatile than the S&P 500. Comparatively, Monroe Capital has a beta of 0.75, suggesting that its share price is 25% less volatile than the S&P 500.

Valuation and Earnings

This table compares Prospect Capital and Monroe Capital”s gross 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	1.90	-$469.92 million	($0.81)	-3.49
Monroe Capital	$60.53 million	2.12	$9.70 million	($0.19)	-31.11

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

Summary

Prospect Capital beats Monroe Capital on 8 of the 15 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 Monroe Capital

Monroe Capital Corporation is a business development company specializing in customized financing solutions in senior, unitranche and junior secured debt, subordinated debt financing and to a lesser extent, unsecured debt and equity, including equity co-investments in preferred and common stock and warrants. It also provides financing primarily to leveraged buyouts in lower middle-market companies. It focuses to invest in the United States and Canada. The fund prefers to invest in companies with EBITDA between $3 and $35 million. Its makes minority equity investments.