Critical Analysis: Ares Capital (ARCC) and OHA Investment (OHAI)

Share on StockTwits

Ares Capital (NASDAQ:ARCC) and OHA Investment (NASDAQ:OHAI) are both finance companies, but which is the better investment? We will compare the two companies based on the strength of their valuation, profitability, institutional ownership, risk, earnings, dividends and analyst recommendations.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for Ares Capital and OHA Investment, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ares Capital 0 0 5 0 3.00
OHA Investment 0 0 0 0 N/A

Ares Capital currently has a consensus price target of $18.30, suggesting a potential upside of 19.45%. Given Ares Capital’s higher probable upside, equities analysts clearly believe Ares Capital is more favorable than OHA Investment.

Profitability

This table compares Ares Capital and OHA Investment’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ares Capital 72.13% 9.34% 5.43%
OHA Investment -22.85% 2.10% 0.96%

Institutional and Insider Ownership

39.3% of Ares Capital shares are held by institutional investors. Comparatively, 31.2% of OHA Investment shares are held by institutional investors. 0.5% of Ares Capital shares are held by company insiders. Comparatively, 4.5% of OHA Investment shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Dividends

Ares Capital pays an annual dividend of $1.56 per share and has a dividend yield of 10.2%. OHA Investment pays an annual dividend of $0.08 per share and has a dividend yield of 7.1%. Ares Capital pays out 112.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Valuation & Earnings

This table compares Ares Capital and OHA Investment’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Ares Capital $1.16 billion 5.63 $667.00 million $1.39 11.02
OHA Investment $10.27 million 2.20 -$31.10 million N/A N/A

Ares Capital has higher revenue and earnings than OHA Investment.

Risk & Volatility

Ares Capital has a beta of 0.58, suggesting that its stock price is 42% less volatile than the S&P 500. Comparatively, OHA Investment has a beta of 0.63, suggesting that its stock price is 37% less volatile than the S&P 500.

Summary

Ares Capital beats OHA Investment on 10 of the 14 factors compared between the two stocks.

Ares Capital Company Profile

Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. It prefers to make investments in companies engaged in the basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors. The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors. It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office. The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity. The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions. The fund prefers to be an agent and/or lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.

OHA Investment Company Profile

OHA Investment Corporation is a business development company specializing in investments in small and mid size and middle market private companies. The fund typically invests in acquisitions, buyouts, growth, development, expansion, monetizations, revitalization, restructuring, recapitalizations, and special situations. It seeks to invest in energy, natural resources, niche manufacturing, value added distribution, business services, healthcare products and services, consumer services, etc. Within energy, the fund focuses on oil and gas production and development including limited exploration or technology risk; midstream including pipelines, storage, gathering and processing systems; coal mining, production, and services; and oilfield manufacturing. It seeks to invest in companies based in the United States. The fund primarily invests between $5 million and $100 million in its portfolio companies. It invests in the form of unitranche (combined senior and subordinated debt), secured, senior, and subordinate debt; convertible debt; preferred equity; project equity; loans; securities of foreign companies; production payments, net profits interests, and similar investments; and senior secured and mezzanine loans and may receive equity investments in portfolio companies in connection with such investments. The fund makes asset and project based investments in private companies and can also invest in public companies. It seeks to make exit by allowing the portfolio company to refinance the facility often with senior debt or by the sale of the portfolio company's assets or the entire company.

Receive News & Ratings for Ares Capital Daily - Enter your email address below to receive a concise daily summary of the latest news and analysts' ratings for Ares Capital and related companies with MarketBeat.com's FREE daily email newsletter.

Leave a Reply