Critical Analysis: Bain Capital Specialty Finance (NYSE:BCSF) versus Morningstar (NASDAQ:MORN)

Morningstar (NASDAQ:MORN) and Bain Capital Specialty Finance (NYSE:BCSF) are both finance companies, but which is the better stock? We will contrast the two companies based on the strength of their valuation, risk, earnings, institutional ownership, profitability, dividends and analyst recommendations.

Dividends

Morningstar pays an annual dividend of $2.00 per share and has a dividend yield of 1.0%. Bain Capital Specialty Finance pays an annual dividend of $1.68 per share and has a dividend yield of 15.8%. Morningstar pays out 18.9% of its earnings in the form of a dividend. Bain Capital Specialty Finance pays out 169.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Morningstar has increased its dividend for 16 consecutive years and Bain Capital Specialty Finance has increased its dividend for 4 consecutive years.

Risk and Volatility

Morningstar has a beta of 1.02, suggesting that its share price is 2% more volatile than the S&P 500. Comparatively, Bain Capital Specialty Finance has a beta of 0.6, suggesting that its share price is 40% less volatile than the S&P 500.

Valuation & Earnings

This table compares Morningstar and Bain Capital Specialty Finance”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Morningstar	$2.45 billion	3.14	$374.20 million	$10.56	19.36
Bain Capital Specialty Finance	$78.39 million	8.79	$98.76 million	$0.99	10.73

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

Institutional & Insider Ownership

57.0% of Morningstar shares are held by institutional investors. 38.8% of Morningstar shares are held by insiders. Comparatively, 0.6% of Bain Capital Specialty Finance shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Profitability

This table compares Morningstar and Bain Capital Specialty Finance’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Morningstar	16.43%	38.57%	12.22%
Bain Capital Specialty Finance	24.22%	10.40%	4.33%

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Morningstar and Bain Capital Specialty Finance, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Morningstar	0	1	2	0	2.67
Bain Capital Specialty Finance	1	3	0	0	1.75

Morningstar currently has a consensus target price of $227.33, indicating a potential upside of 11.19%. Bain Capital Specialty Finance has a consensus target price of $12.60, indicating a potential upside of 18.64%. Given Bain Capital Specialty Finance’s higher possible upside, analysts clearly believe Bain Capital Specialty Finance is more favorable than Morningstar.

Summary

Morningstar beats Bain Capital Specialty Finance on 13 of the 17 factors compared between the two stocks.

About Morningstar

Morningstar, Inc. provides independent investment insights in the United States, Asia. Australia, Continental Europe, the United Kingdom, and internationally. The company operates in five segments: Morningstar Data and Analytics; PitchBook; Morningstar Wealth; Morningstar Credit; and Morningstar Retirement. The company offers managing investments, including mutual funds, ETFs, separate accounts, collective investment trusts, model portfolios, equities, and fixed income securities; Morningstar Direct is an investment-analysis and reporting platform; Morningstar Advisor Workstation, a suite of tool to provide help and advice. The PitchBook segment provides data and research covering the private capital markets comprising venture capital, private equity, private credit and bank loans, and merger and acquisition activities; and pitchbook platform. It provides model portfolios and wealth platforms; Morningstar Managed Portfolios, an advisor service with model portfolios designed for fee-based independent financial advisors; and Morningstar.com that discovers, evaluates, and monitors stocks, ETFs, and mutual funds; build and monitor portfolios and markets. In addition, the company provides credit ratings, research, data, and credit analytics solutions; Morningstar DBRS which offers securitizations and other structured finance instruments, such as asset-backed securities, residential mortgage-backed securities, commercial mortgage-backed securities, and collateralized loan obligations. Further, it offers managed retirement accounts, fiduciary services, Morningstar Lifetime Allocation funds, and custom models; Morningstar Indexes offers market indexes used for performance benchmarks and as the basis for investment products and other portfolio strategies; and Morningstar Sustainalytics provides environmental, social and governance data, research, analysis, and insights. Morningstar, Inc. was incorporated in 1984 and is headquartered in Chicago, Illinois.

About Bain Capital Specialty Finance

Bain Capital Specialty Finance, Inc. is business development company specializing in direct loans to middle-market companies. The fund seeks to invest in senior investments with a first or second lien on collateral, senior first lien, stretch senior, senior second lien, unitranche, mezzanine debt, junior securities, other junior investments, and secondary purchases of assets or portfolios that primarily consist of middle-market corporate debt. It typically invests in companies with EBITDA between $10 million and $150 million.