TCP Capital (NASDAQ: TCPC) and Ares Capital (NASDAQ:ARCC) are both financials companies, but which is the better business? We will compare the two businesses based on the strength of their analyst recommendations, profitability, valuation, institutional ownership, earnings, risk and dividends.
Risk and Volatility
TCP Capital has a beta of 0.71, indicating that its stock price is 29% less volatile than the S&P 500. Comparatively, Ares Capital has a beta of 0.6, indicating that its stock price is 40% less volatile than the S&P 500.
This is a breakdown of recent ratings and recommmendations for TCP Capital and Ares Capital, as provided by MarketBeat.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
TCP Capital presently has a consensus price target of $17.67, indicating a potential upside of 23.54%. Ares Capital has a consensus price target of $18.00, indicating a potential upside of 12.43%. Given TCP Capital’s stronger consensus rating and higher probable upside, equities analysts clearly believe TCP Capital is more favorable than Ares Capital.
TCP Capital pays an annual dividend of $1.44 per share and has a dividend yield of 10.1%. Ares Capital pays an annual dividend of $1.52 per share and has a dividend yield of 9.5%. TCP Capital pays out 123.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Ares Capital pays out 96.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.
Insider and Institutional Ownership
52.9% of TCP Capital shares are held by institutional investors. Comparatively, 42.8% of Ares Capital shares are held by institutional investors. 0.6% of TCP Capital shares are held by insiders. Comparatively, 0.5% of Ares Capital shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.
Earnings and Valuation
This table compares TCP Capital and Ares Capital’s revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||Net Income||Earnings Per Share||Price/Earnings Ratio|
|TCP Capital||$175.97 million||4.78||$90.61 million||$1.17||12.22|
|Ares Capital||$1.16 billion||5.88||$667.00 million||$1.57||10.20|
Ares Capital has higher revenue and earnings than TCP Capital. Ares Capital is trading at a lower price-to-earnings ratio than TCP Capital, indicating that it is currently the more affordable of the two stocks.
This table compares TCP Capital and Ares Capital’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
TCP Capital beats Ares Capital on 9 of the 16 factors compared between the two stocks.
About TCP Capital
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.
About Ares Capital
Ares Capital Corporation is a specialty finance company. The Company operates as a closed-end, 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 primarily in the United States middle-market companies. It may from time to time invest in larger or smaller (in particular, for investments in early-stage and/or venture capital-backed) companies. It invests primarily in first lien senior secured loans (including unitranche loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position), second lien senior secured loans, and mezzanine debt, which in some cases includes an equity component. It invests in various industries, such as automotive services, business services, consumer products, and containers and packaging. Ares Capital Management LLC serves as its investment advisor.
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