Analyzing Bain Capital Specialty Finance (NYSE:BCSF) & OFS Capital (NASDAQ:OFS)

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

Insider and Institutional Ownership

10.8% of OFS Capital shares are held by institutional investors. 0.5% of OFS Capital 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 large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Volatility and Risk

OFS Capital has a beta of 0.87, indicating that its stock price is 13% less volatile than the S&P 500. Comparatively, Bain Capital Specialty Finance has a beta of 0.61, indicating that its stock price is 39% less volatile than the S&P 500.

Dividends

OFS Capital pays an annual dividend of $1.36 per share and has a dividend yield of 29.5%. Bain Capital Specialty Finance pays an annual dividend of $1.68 per share and has a dividend yield of 12.1%. OFS Capital pays out 566.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Bain Capital Specialty Finance pays out 116.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital has raised its dividend for 3 consecutive years and Bain Capital Specialty Finance has raised its dividend for 4 consecutive years.

Analyst Ratings

This is a summary of current recommendations and price targets for OFS Capital and Bain Capital Specialty Finance, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
OFS Capital	0	2	0	0	2.00
Bain Capital Specialty Finance	0	1	2	0	2.67

OFS Capital currently has a consensus target price of $7.00, indicating a potential upside of 51.84%. Bain Capital Specialty Finance has a consensus target price of $15.50, indicating a potential upside of 11.55%. Given OFS Capital’s higher possible upside, equities research analysts plainly believe OFS Capital is more favorable than Bain Capital Specialty Finance.

Earnings and Valuation

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
OFS Capital	$47.96 million	N/A	$28.44 million	$0.24	19.21
Bain Capital Specialty Finance	$292.65 million	3.08	$119.42 million	$1.44	9.65

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
OFS Capital	7.52%	8.95%	3.41%
Bain Capital Specialty Finance	33.45%	11.03%	4.66%

Summary

Bain Capital Specialty Finance beats OFS Capital on 11 of the 16 factors compared between the two stocks.

About OFS Capital

OFS Capital Corporation is a business development company specializing in direct and fund investments as well as add-on acquisitions. It provides flexible capital solutions primarily through debt capital and to a lesser extent, minority equity investments serving the needs of U.S.-based middle-market companies across a broad array of industries. It does not invest in operational turnarounds or start-up businesses. For direct, it specializes in debt and structured equity investments, recapitalizations and refinancing, management and leveraged buyouts, acquisition financings, ownership transition, shareholder liquidity events, growth capital, independent sponsor transactions, ESOPs, and minority investments in the lower middle market companies. It invests in the aerospace and defense, business services, consumer products and services, construction & building, durable goods, capital equipment, automotive, food and beverage, healthcare & pharmaceutical, specialty chemicals, transportation cargo and logistics, value added distribution, franchising, and industrial and niche manufacturing sectors. The firm invests in companies based in United States. It seeks to invest between $3 million and $35 million, revenues between $15 million and $300 million, annual EBITDA between $5 million and $50 million, and Enterprise value between $10 million and $500 million. The firm seeks to invest in companies with debt investment values between $5 million and $25 million. The fund uses senior secured, unitranche loans, first-lien, second lien, subordinated/ mezzanine loans, warrants, and preferred equity securities and common equity securities. It prefers to take a minority as well as majority stake in the investments made. It also co-invests with its partners for additional capital.

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.