Solar Capital (SLRC) and Horizon Technology Finance Corporation (HRZN) Critical Contrast

Solar Capital (NASDAQ: SLRC) and Horizon Technology Finance Corporation (NASDAQ:HRZN) are both small-cap finance companies, but which is the better stock? We will compare the two businesses based on the strength of their valuation, earnings, analyst recommendations, institutional ownership, profitabiliy, dividends and risk.

Insider & Institutional Ownership

62.5% of Solar Capital shares are held by institutional investors. Comparatively, 17.4% of Horizon Technology Finance Corporation shares are held by institutional investors. 5.9% of Solar Capital shares are held by insiders. Comparatively, 1.3% of Horizon Technology Finance Corporation shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Analyst Ratings

This is a breakdown of recent recommendations for Solar Capital and Horizon Technology Finance Corporation, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Solar Capital 0 4 2 0 2.33
Horizon Technology Finance Corporation 2 3 0 0 1.60

Solar Capital currently has a consensus price target of $22.48, suggesting a potential upside of 3.55%. Horizon Technology Finance Corporation has a consensus price target of $10.33, suggesting a potential downside of 2.24%. Given Solar Capital’s stronger consensus rating and higher probable upside, equities research analysts clearly believe Solar Capital is more favorable than Horizon Technology Finance Corporation.

Dividends

Solar Capital pays an annual dividend of $1.60 per share and has a dividend yield of 7.4%. Horizon Technology Finance Corporation pays an annual dividend of $1.20 per share and has a dividend yield of 11.4%. Solar Capital pays out 85.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Horizon Technology Finance Corporation pays out -750.0% of its earnings in the form of a dividend. Horizon Technology Finance Corporation is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk and Volatility

Solar Capital has a beta of 0.54, suggesting that its share price is 46% less volatile than the S&P 500. Comparatively, Horizon Technology Finance Corporation has a beta of 0.81, suggesting that its share price is 19% less volatile than the S&P 500.

Earnings and Valuation

This table compares Solar Capital and Horizon Technology Finance Corporation’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Solar Capital N/A N/A N/A $1.88 11.55
Horizon Technology Finance Corporation N/A N/A N/A ($0.16) -66.06

Horizon Technology Finance Corporation is trading at a lower price-to-earnings ratio than Solar Capital, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Solar Capital and Horizon Technology Finance Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Solar Capital 54.87% 7.30% 3.96%
Horizon Technology Finance Corporation -6.72% 10.24% 6.29%

Summary

Solar Capital beats Horizon Technology Finance Corporation on 8 of the 13 factors compared between the two stocks.

About Solar Capital

Solar Capital Ltd. is a closed-end, externally managed, 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 in privately held the United States middle market companies. It invests in leveraged middle market companies in the form of senior secured loans, unitranche loans, mezzanine loans and equity securities. It may also invest in public companies that are thinly traded. Its business is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Its investments generally range between $5 million and $100 million each. In addition, the Company may invest a portion of its portfolio in other types of investments, which it refers to as opportunistic investments. The Company’s investment activities are managed by Solar Capital Partners, LLC (Solar Capital Partners or the Investment Advisor).

About Horizon Technology Finance Corporation

Horizon Technology Finance Corporation is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objective is to maximize investment portfolio’s total return by generating current income from the debt investments it makes and capital appreciation from the warrants it receives when making such debt investments. It lends to and invests in development-stage companies in the technology, life science, healthcare information and services and cleantech industries (collectively Target Industries). It is focused on making secured debt investments (Venture Loans) to venture capital backed companies in its Target Industries. As of December 31, 2016, its debt investment portfolio consisted of 44 debt investments. As of December 31, 2016, the Company held warrants to purchase stock, predominantly preferred stock, in 78 portfolio companies, equity positions in five portfolio companies and success fee arrangements in 11 portfolio companies.

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