Financial Analysis: Ares Capital (ARCC) vs. Triangle Capital (TCAP)

Ares Capital (NASDAQ: ARCC) and Triangle Capital (NYSE:TCAP) are both financials companies, but which is the better stock? We will compare the two companies based on the strength of their institutional ownership, profitability, earnings, dividends, valuation, risk and analyst recommendations.

Dividends

Ares Capital pays an annual dividend of $1.52 per share and has a dividend yield of 9.4%. Triangle Capital pays an annual dividend of $1.20 per share and has a dividend yield of 11.1%. Ares Capital pays out 120.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Triangle Capital pays out -133.3% of its earnings in the form of a dividend. Triangle Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Valuation and Earnings

This table compares Ares Capital and Triangle Capital’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 $1.01 billion 6.82 $474.00 million $1.26 12.84
Triangle Capital $113.68 million 4.54 $34.25 million ($0.90) -12.00

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

Insider & Institutional Ownership

43.6% of Ares Capital shares are held by institutional investors. Comparatively, 35.1% of Triangle Capital shares are held by institutional investors. 0.5% of Ares Capital shares are held by company insiders. Comparatively, 4.1% of Triangle Capital shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Profitability

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

Net Margins Return on Equity Return on Assets
Ares Capital 45.78% 8.60% 4.95%
Triangle Capital -36.80% 10.67% 5.91%

Analyst Ratings

This is a summary of recent ratings and price targets for Ares Capital and Triangle Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ares Capital 0 2 8 0 2.80
Triangle Capital 1 6 4 0 2.27

Ares Capital presently has a consensus target price of $18.00, suggesting a potential upside of 11.25%. Triangle Capital has a consensus target price of $16.00, suggesting a potential upside of 48.15%. Given Triangle Capital’s higher possible upside, analysts clearly believe Triangle Capital is more favorable than Ares Capital.

Volatility & Risk

Ares Capital has a beta of 0.63, suggesting that its share price is 37% less volatile than the S&P 500. Comparatively, Triangle Capital has a beta of 0.82, suggesting that its share price is 18% less volatile than the S&P 500.

Summary

Ares Capital beats Triangle Capital on 9 of the 16 factors compared between the two stocks.

Ares Capital Company Profile

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.

Triangle Capital Company Profile

Triangle Capital Corporation is an internally managed, non-diversified closed-end management investment company. The Company is a specialty finance company that provides customized financing to lower middle market companies located primarily in the United States. The Company’s investment objective is to seek attractive returns by generating current income from its debt investments and capital appreciation from its equity-related investments. The Company invests primarily in subordinated debt securities secured by second lien security interests in portfolio company assets, coupled with equity interests. The Company also invests in senior debt securities secured by first lien security interests in portfolio company assets. The Company’s portfolio includes its investments in various industry sectors, such as baby products; manufacturer and distributor for independent artists and authors; loan origination software solutions provider, and restaurant.

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