Contrasting TCP Capital (TCPC) & Prospect Capital (PSEC)

TCP Capital (NASDAQ: TCPC) and Prospect Capital (NASDAQ:PSEC) are both financials companies, but which is the superior business? We will compare the two businesses based on the strength of their dividends, institutional ownership, profitability, valuation, analyst recommendations, risk and earnings.

Dividends

TCP Capital pays an annual dividend of $1.44 per share and has a dividend yield of 9.1%. Prospect Capital pays an annual dividend of $0.72 per share and has a dividend yield of 10.7%. TCP Capital pays out 105.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Prospect Capital pays out 144.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Risk and Volatility

TCP Capital has a beta of 0.71, indicating that its share price is 29% less volatile than the S&P 500. Comparatively, Prospect Capital has a beta of 0.56, indicating that its share price is 44% less volatile than the S&P 500.

Valuation and Earnings

This table compares TCP Capital and Prospect Capital’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
TCP Capital $148.18 million 6.30 $95.36 million $1.37 11.58
Prospect Capital $701.05 million 3.48 $252.90 million $0.50 13.52

Prospect Capital has higher revenue and earnings than TCP Capital. TCP 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.

Profitability

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

Net Margins Return on Equity Return on Assets
TCP Capital 49.53% 12.17% 6.82%
Prospect Capital 27.00% 8.63% 4.75%

Analyst Recommendations

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

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
TCP Capital 0 0 5 0 3.00
Prospect Capital 1 3 0 0 1.75

TCP Capital presently has a consensus price target of $18.00, indicating a potential upside of 13.42%. Prospect Capital has a consensus price target of $6.17, indicating a potential downside of 8.78%. Given TCP Capital’s stronger consensus rating and higher probable upside, equities analysts plainly believe TCP Capital is more favorable than Prospect Capital.

Institutional and Insider Ownership

49.7% of TCP Capital shares are owned by institutional investors. Comparatively, 15.7% of Prospect Capital shares are owned by institutional investors. 0.6% of TCP Capital shares are owned by company insiders. Comparatively, 7.1% 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 company is poised for long-term growth.

Summary

TCP Capital beats Prospect Capital on 12 of the 16 factors compared between the two stocks.

TCP Capital Company Profile

TCP Capital Corp. is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objective is to achieve high total returns through current income and capital appreciation, with an emphasis on principal protection. It invests in the debt of middle-market companies, as well as small businesses, including senior secured loans, junior loans, mezzanine debt and bonds. Its investments may include an equity component and may make equity investments directly. It intends to focus on privately negotiated investments in debt of middle-market companies. It may make investments of all kinds and at all levels of the capital structure, including in equity interests, such as preferred or common stock and warrants or options received in connection with its debt investments. As of December 31, 2016, its investment portfolio consisted of 90 portfolio companies. Tennenbaum Capital Partners, LLC is the investment manager and advisor of the Company.

Prospect Capital Company Profile

Prospect Capital Corporation is a financial services company. The Company primarily lends to and invests in middle market privately held companies. The Company is a closed-end investment company. Its investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. The Company invests primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. The Company makes investments, including lending in private equity sponsored transactions, lending directly to companies not owned by private equity firms, control investments in corporate operating companies, control investments in financial companies, investments in structured credit, real estate investments, investments in syndicated debt, aircraft leasing and online lending. The Company is managed by its investment advisor, Prospect Capital Management L.P.

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