Solar Capital (NASDAQ: SLRC) and FS Investment Corporation (NYSE:FSIC) are both finance companies, but which is the better investment? We will compare the two companies based on the strength of their valuation, institutional ownership, profitabiliy, earnings, dividends, risk and analyst recommendations.
Profitability
This table compares Solar Capital and FS Investment Corporation’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Solar Capital | 54.87% | 7.30% | 3.96% |
| FS Investment Corporation | 86.84% | 9.44% | 5.21% |
Analyst Recommendations
This is a breakdown of recent recommendations and price targets for Solar Capital and FS Investment Corporation, as reported by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Solar Capital | 0 | 4 | 2 | 0 | 2.33 |
| FS Investment Corporation | 0 | 6 | 1 | 0 | 2.14 |
Solar Capital currently has a consensus target price of $22.48, indicating a potential upside of 1.86%. FS Investment Corporation has a consensus target price of $9.75, indicating a potential upside of 8.94%. Given FS Investment Corporation’s higher probable upside, analysts clearly believe FS Investment Corporation is more favorable than Solar Capital.
Dividends
Solar Capital pays an annual dividend of $1.60 per share and has a dividend yield of 7.2%. FS Investment Corporation pays an annual dividend of $0.89 per share and has a dividend yield of 9.9%. Solar Capital pays out 85.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. FS Investment Corporation pays out 58.6% of its earnings in the form of a dividend. FS Investment Corporation is clearly the better dividend stock, given its higher yield and lower payout ratio.
Insider & Institutional Ownership
62.7% of Solar Capital shares are owned by institutional investors. Comparatively, 31.8% of FS Investment Corporation shares are owned by institutional investors. 5.9% of Solar Capital shares are owned by insiders. Comparatively, 1.0% of FS Investment Corporation shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.
Valuation and Earnings
This table compares Solar Capital and FS Investment Corporation’s gross revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | EBITDA | Earnings Per Share | Price/Earnings Ratio | |
| Solar Capital | N/A | N/A | N/A | $1.88 | 11.74 |
| FS Investment Corporation | N/A | N/A | N/A | $1.52 | 5.89 |
FS Investment Corporation is trading at a lower price-to-earnings ratio than Solar Capital, indicating that it is currently the more affordable of the two stocks.
Volatility and Risk
Solar Capital has a beta of 0.54, indicating that its share price is 46% less volatile than the S&P 500. Comparatively, FS Investment Corporation has a beta of 0.94, indicating that its share price is 6% less volatile than the S&P 500.
Summary
FS Investment Corporation beats Solar Capital on 7 of the 13 factors compared between the two stocks.
Solar Capital Company Profile
Solar Capital Ltd. is a closed-end, externally managed, non-diversified management investment company. The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. It invests in privately held the United States middle market companies. It invests in leveraged middle market companies in the form of senior secured loans, unitranche loans, mezzanine loans and equity securities. It may also invest in public companies that are thinly traded. Its business is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Its investments generally range between $5 million and $100 million each. In addition, the Company may invest a portion of its portfolio in other types of investments, which it refers to as opportunistic investments. The Company’s investment activities are managed by Solar Capital Partners, LLC (Solar Capital Partners or the Investment Advisor).
FS Investment Corporation Company Profile
FS Investment Corporation is an externally managed, non-diversified, closed-end management investment company. The Company’s investment objectives are to generate current income and long-term capital appreciation. Its portfolio consists primarily of investments in senior secured loans and second lien secured loans of the private United States middle market companies and subordinated loans of the private United States companies. It may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the over-the-counter market or directly from target companies as primary market or directly originated investments. It invests in a range of industries, including capital goods; consumer services; consumer durables and apparel; materials; commercial and professional services, and diversified financials. Its investment advisor is FB Income Advisor, LLC.
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