New Mountain Finance Corporation (NYSE: NMFC) and TCP Capital Corp. (NASDAQ:TCPC) are both small-cap finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their earnings, valuation, profitability, institutional ownership, analyst recommendations, risk and dividends.

Insider and Institutional Ownership

40.7% of New Mountain Finance Corporation shares are owned by institutional investors. Comparatively, 53.3% of TCP Capital Corp. shares are owned by institutional investors. 9.7% of New Mountain Finance Corporation shares are owned by company insiders. Comparatively, 0.6% of TCP Capital Corp. shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Valuation and Earnings

This table compares New Mountain Finance Corporation and TCP Capital Corp.’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
New Mountain Finance Corporation N/A N/A N/A $1.57 9.08
TCP Capital Corp. N/A N/A N/A $1.55 10.64

New Mountain Finance Corporation is trading at a lower price-to-earnings ratio than TCP Capital Corp., indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares New Mountain Finance Corporation and TCP Capital Corp.’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
New Mountain Finance Corporation 65.22% 10.15% 5.38%
TCP Capital Corp. 54.74% 12.93% 7.29%

Volatility and Risk

New Mountain Finance Corporation has a beta of 0.58, indicating that its stock price is 42% less volatile than the S&P 500. Comparatively, TCP Capital Corp. has a beta of 0.76, indicating that its stock price is 24% less volatile than the S&P 500.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for New Mountain Finance Corporation and TCP Capital Corp., as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
New Mountain Finance Corporation 0 1 0 0 2.00
TCP Capital Corp. 0 0 6 0 3.00

New Mountain Finance Corporation presently has a consensus target price of $15.00, indicating a potential upside of 5.26%. TCP Capital Corp. has a consensus target price of $18.25, indicating a potential upside of 10.67%. Given TCP Capital Corp.’s stronger consensus rating and higher probable upside, analysts plainly believe TCP Capital Corp. is more favorable than New Mountain Finance Corporation.

Dividends

New Mountain Finance Corporation pays an annual dividend of $1.36 per share and has a dividend yield of 9.5%. TCP Capital Corp. pays an annual dividend of $1.44 per share and has a dividend yield of 8.7%. New Mountain Finance Corporation pays out 86.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. TCP Capital Corp. pays out 92.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. New Mountain Finance Corporation is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

TCP Capital Corp. beats New Mountain Finance Corporation on 7 of the 13 factors compared between the two stocks.

New Mountain Finance Corporation Company Profile

New Mountain Finance Corporation is a closed-end, non-diversified management investment company. The Company’s investment objective is to generate current income and capital appreciation through the sourcing and origination of debt securities at all levels of the capital structure, including first and second lien debt, notes, bonds and mezzanine securities. Its investments may also include equity interests, such as preferred stock, common stock, warrants or options received in connection with its debt investments or may include a direct investment in the equity of private companies. The Company makes investments through both primary originations and open-market secondary purchases. Its investment portfolio includes its investments in various industries, such as business services, software, consumer services, investment fund, education, energy, healthcare services, distribution and logistics, and Federal services. Its investment advisor is New Mountain Finance Advisers BDC, L.L.C.

TCP Capital Corp. 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.

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