Contrasting Carlyle Secured Lending (NASDAQ:CGBD) and Ares Capital (NASDAQ:ARCC)

Ares Capital (NASDAQ:ARCC) and Carlyle Secured Lending (NASDAQ:CGBD) are both finance companies, but which is the better investment? We will contrast the two companies based on the strength of their valuation, analyst recommendations, dividends, risk, profitability, institutional ownership and earnings.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Ares Capital and Carlyle Secured Lending, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ares Capital	0	3	8	0	2.73
Carlyle Secured Lending	0	4	3	0	2.43

Ares Capital currently has a consensus price target of $20.60, suggesting a potential upside of 8.22%. Carlyle Secured Lending has a consensus price target of $12.50, suggesting a potential upside of 20.95%. Given Carlyle Secured Lending’s higher possible upside, analysts plainly believe Carlyle Secured Lending is more favorable than Ares Capital.

Dividends

Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.1%. Carlyle Secured Lending pays an annual dividend of $1.40 per share and has a dividend yield of 13.5%. Ares Capital pays out 117.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Carlyle Secured Lending pays out 197.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Earnings & Valuation

This table compares Ares Capital and Carlyle Secured Lending”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ares Capital	$3.05 billion	4.48	$1.30 billion	$1.63	11.68
Carlyle Secured Lending	$255.57 million	2.81	$69.97 million	$0.71	14.56

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Ares Capital	37.30%	9.85%	4.59%
Carlyle Secured Lending	19.52%	8.99%	4.01%

Risk & Volatility

Ares Capital has a beta of 0.56, meaning that its stock price is 44% less volatile than the S&P 500. Comparatively, Carlyle Secured Lending has a beta of 0.62, meaning that its stock price is 38% less volatile than the S&P 500.

Institutional & Insider Ownership

27.4% of Ares Capital shares are held by institutional investors. Comparatively, 24.5% of Carlyle Secured Lending shares are held by institutional investors. 0.5% of Ares Capital shares are held by company insiders. Comparatively, 0.3% of Carlyle Secured Lending shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Summary

Ares Capital beats Carlyle Secured Lending on 12 of the 16 factors compared between the two stocks.

About Ares Capital

Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. It prefers to make investments in companies engaged in the basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors. The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors. It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office. The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity. The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions. The fund prefers to be an agent and/or lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.

About Carlyle Secured Lending

Carlyle Secured Lending, Inc. is business development company specializing in first lien debt, senior secured loans, second lien senior secured loan unsecured debt, mezzanine debt and investments in equities. It specializes in directly investing. It specializes in middle market. It targets healthcare and pharmaceutical, aerospace and defense, high tech industries, business services, software, beverage food and tobacco, hotel gamming and leisure, banking finance insurance and in real estate sector. The fund seeks to invest across United States of America, Luxembourg, Cayman Islands, Cyprus, and United Kingdom. It invests in companies with EBITDA between $25 million and $100 million.