Garrison Capital (NASDAQ: KCAP) and KCAP Financial (NASDAQ:KCAP) are both small-cap finance companies, but which is the superior business? We will compare the two companies based on the strength of their earnings, analyst recommendations, institutional ownership, dividends, profitability, valuation and risk.

Insider & Institutional Ownership

25.5% of Garrison Capital shares are held by institutional investors. Comparatively, 25.7% of KCAP Financial shares are held by institutional investors. 6.4% of Garrison Capital shares are held by insiders. Comparatively, 8.0% of KCAP Financial shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Garrison Capital and KCAP Financial, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Garrison Capital 0 0 2 0 3.00
KCAP Financial 0 2 0 0 2.00

Garrison Capital currently has a consensus price target of $11.00, suggesting a potential upside of 33.01%. KCAP Financial has a consensus price target of $3.00, suggesting a potential downside of 9.09%. Given Garrison Capital’s stronger consensus rating and higher possible upside, equities research analysts clearly believe Garrison Capital is more favorable than KCAP Financial.

Dividends

Garrison Capital pays an annual dividend of $1.12 per share and has a dividend yield of 13.5%. KCAP Financial pays an annual dividend of $0.40 per share and has a dividend yield of 12.1%. Garrison Capital pays out 104.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. KCAP Financial pays out 133.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Garrison Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Garrison Capital and KCAP Financial’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Garrison Capital 33.79% 9.53% 4.22%
KCAP Financial 6.71% 5.63% 3.35%

Volatility and Risk

Garrison Capital has a beta of 0.3, indicating that its stock price is 70% less volatile than the S&P 500. Comparatively, KCAP Financial has a beta of 1.47, indicating that its stock price is 47% more volatile than the S&P 500.

Valuation and Earnings

This table compares Garrison Capital and KCAP Financial’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Garrison Capital $36.62 million 3.62 $6.22 million $1.07 7.73
KCAP Financial $28.26 million 4.36 $3.38 million $0.30 11.00

Garrison Capital has higher revenue and earnings than KCAP Financial. Garrison Capital is trading at a lower price-to-earnings ratio than KCAP Financial, indicating that it is currently the more affordable of the two stocks.

Summary

Garrison Capital beats KCAP Financial on 11 of the 16 factors compared between the two stocks.

Garrison Capital Company Profile

Garrison Capital Inc. is a business development company specializing in investments primarily in the debt and equity of middle market companies. It seeks to invest in first lien senior secured loans, second lien senior secured loans, ?one-stop? senior secured or ?unitranche? loans, subordinated or mezzanine loans, unsecured consumer loans and to a lesser extent, selected equity co-investments in middle-market companies, warrants and minority equity securities in United States middle-market companies. The fund focuses on consumer loans, capital market activities, traditional direct lending but at times may purchase loans in the secondary market or make special situation investments. It seeks to invest between $5 million and $25 million in equity and between $10 million and $25 million in debt per transaction primarily in debt securities and loans with annual EBITDA between $5 million and $30 million, annual revenue between $50 million and $200 million. Its investments typically range in maturity from one to six years.

KCAP Financial Company Profile

KCAP Financial, Inc. is a business development company specializing in investments in debt securities portfolio, asset manager affiliates, and CLO fund securities. The firm prefers to invest in senior secured term loans, mezzanine debt, and equity securities primarily in privately-held middle market, and buyout companies. It also invests in debt and subordinated securities issued by CLO Fund Securities. The firm also makes investments in CLO Fund Securities managed by asset managers. Its investments under CLO Fund Securities comprises of minority investment in the subordinated securities or preferred stock of CLO Funds raised and managed by firm's Asset Manager Affiliates. The firm also invests in other investments such as loans to larger, publicly-traded companies, high-yield bonds and distressed debt securities. It also invests in first and second lien term loans. The firm also prefers to invest in secured and unsecured subordinated debt. It also makes acquisitions in businesses complementary to the firm's business. It primarily invests in healthcare, cargo transport, manufacturing, real estate, educate, automotive, agriculture, aerospace/defence, packaging, electronics, finance, non-durable consumer, utilities, insurance, and food and beverage sectors. The firm typically invests $1 million to $20 million in its portfolio companies. It provides senior secured term loans from $2 million to $20 million maturing in five to seven years; second lien term loans from $5 million to $15 million maturing in six to eight years; senior unsecured loans $5 million to $23 million maturing in six to eight years; mezzanine loans from $5 million to $15 million maturing in seven to ten years; and equity investments from $1 to $5 million. The firm targets the companies with EBITDA between $7.5 million and $50 million. While investing in debt securities, it invests in those middle market firms with EBITDA between $10 million and $50 million and/or total debt between $25 million and $150 million. It invests in minority, and majority or control equity positions alongside its private equity sponsor partners. The firm invests through its own balance sheet. KCAP Financial, Inc. was founded in August 2006 and is based in New York, New York.

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