Comparing FS KKR Capital (NYSE:FSK) & Gladstone Capital (NASDAQ:GLAD)

FS KKR Capital (NYSE:FSK) and Gladstone Capital (NASDAQ:GLAD) are both finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their dividends, institutional ownership, risk, earnings, profitability, analyst recommendations and valuation.

Dividends

FS KKR Capital pays an annual dividend of $1.80 per share and has a dividend yield of 16.9%. Gladstone Capital pays an annual dividend of $1.80 per share and has a dividend yield of 9.5%. FS KKR Capital pays out -91.4% of its earnings in the form of a dividend. Gladstone Capital pays out 98.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Gladstone Capital has raised its dividend for 4 consecutive years. FS KKR Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares FS KKR Capital and Gladstone Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
FS KKR Capital	-38.65%	4.34%	1.85%
Gladstone Capital	45.15%	9.79%	5.31%

Earnings and Valuation

This table compares FS KKR Capital and Gladstone Capital”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
FS KKR Capital	$1.52 billion	1.96	$11.00 million	($1.97)	-5.40
Gladstone Capital	$89.12 million	4.80	$58.11 million	$1.83	10.36

Gladstone Capital has lower revenue, but higher earnings than FS KKR Capital. FS KKR Capital is trading at a lower price-to-earnings ratio than Gladstone Capital, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for FS KKR Capital and Gladstone Capital, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
FS KKR Capital	1	7	0	0	1.88
Gladstone Capital	0	4	2	0	2.33

FS KKR Capital currently has a consensus target price of $10.58, indicating a potential downside of 0.50%. Gladstone Capital has a consensus target price of $21.67, indicating a potential upside of 14.34%. Given Gladstone Capital’s stronger consensus rating and higher possible upside, analysts clearly believe Gladstone Capital is more favorable than FS KKR Capital.

Volatility and Risk

FS KKR Capital has a beta of 0.83, meaning that its stock price is 17% less volatile than the S&P 500. Comparatively, Gladstone Capital has a beta of 0.92, meaning that its stock price is 8% less volatile than the S&P 500.

Institutional and Insider Ownership

36.3% of FS KKR Capital shares are owned by institutional investors. Comparatively, 10.7% of Gladstone Capital shares are owned by institutional investors. 0.3% of FS KKR Capital shares are owned by company insiders. Comparatively, 3.8% of Gladstone Capital shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Summary

Gladstone Capital beats FS KKR Capital on 13 of the 17 factors compared between the two stocks.

About FS KKR Capital

FS KKR Capital Corp. is a business development company specializing in investments in debt securities. It provides customized credit solutions to private middle market U.S. companies. It invest primarily in the senior secured debt and, to a lesser extent, the subordinated debt of private middle market U.S. companies. It seeks to purchase interests in loans through secondary market transactions or directly from the target companies as primary market investments. It also seeks to invest in first lien senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans, or mezzanine loans. In connection with the debt investments, the firm also receives equity interests such as warrants or options as additional consideration. It also seek to purchase minority interests in the form of common or preferred equity in our target companies, either in conjunction with one of the debt investments or through a co-investment with a financial sponsor. Additionally, on an opportunistic basis, the fund may also invest in corporate bonds and similar debt securities. The fund does not seek to invest in start-up companies, turnaround situations, or companies with speculative business plans. It seeks to invest in small and middle-market companies based in United States. The fund seeks to invest in firms with annual revenue between $10 million to $2.5 billion. It focus on providing customized one-stop credit solutions to private upper middle market companies with annual EBITDA of $50 million to $100 million at the time of investment. It seeks to exit from securities by selling them in a privately negotiated over- the- counter market. For any investments that are not able to be sold within the secondary market, the firm seeks to exit such investments through repayment, an initial public offering of equity securities, merger, sale or recapitalization.

About Gladstone Capital

Gladstone Capital Corporation is a business development company specializing in lower middle market, growth capital, add on acquisitions, change of control, buy & build strategies, debt refinancing, debt investments in senior term loans, revolving loans, secured first and second lien term loans, senior subordinated loans, unitranche loans, junior subordinated loans, and mezzanine loans and equity investments in the form of common stock, preferred stock, limited liability company interests, or warrants. It operates as a business development company. The fund also makes private equity investments in acquisitions, buyouts and recapitalizations, and refinancing existing debts. It targets small and medium-sized companies in United States. It is industry agnostic and seeks to invest in companies engaged in the business services, light and specialty manufacturing, niche industrial products and services, specialty consumer products and services, energy services, transportation and logistics, healthcare and education services, specialty chemicals, media and communications and aerospace and defense. The fund seeks to invest between $7 million and $30 million in companies that have between $20 million and $150 million in sales and EBITDA between $3 million and $25 million. It prefers to acquire minority stakes. It seeks to exit its investments through strategic acquisitions by other industry participants or financial buyers, initial public offerings of common stock, or other capital market transactions.