Analyzing TPG Specialty Lending (TSLX) and FS Investment Corporation (FSIC)

TPG Specialty Lending (NYSE: TSLX) and FS Investment Corporation (NYSE:FSIC) are both small-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, institutional ownership, valuation, earnings, analyst recommendations, risk and profitability.

Valuation & Earnings

This table compares TPG Specialty Lending and FS Investment Corporation’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
TPG Specialty Lending N/A N/A N/A $2.17 9.51
FS Investment Corporation N/A N/A N/A $1.02 7.84

FS Investment Corporation is trading at a lower price-to-earnings ratio than TPG Specialty Lending, indicating that it is currently the more affordable of the two stocks.

Dividends

TPG Specialty Lending pays an annual dividend of $1.56 per share and has a dividend yield of 7.6%. FS Investment Corporation pays an annual dividend of $0.89 per share and has a dividend yield of 11.1%. TPG Specialty Lending pays out 71.9% of its earnings in the form of a dividend. FS Investment Corporation pays out 87.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Analyst Ratings

This is a summary of recent recommendations for TPG Specialty Lending and FS Investment Corporation, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
TPG Specialty Lending 0 2 2 0 2.50
FS Investment Corporation 0 4 0 0 2.00

TPG Specialty Lending presently has a consensus target price of $20.25, suggesting a potential downside of 1.84%. FS Investment Corporation has a consensus target price of $9.67, suggesting a potential upside of 20.83%. Given FS Investment Corporation’s higher probable upside, analysts plainly believe FS Investment Corporation is more favorable than TPG Specialty Lending.

Profitability

This table compares TPG Specialty Lending and FS Investment Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
TPG Specialty Lending 60.77% 12.68% 7.41%
FS Investment Corporation 59.88% 8.92% 4.92%

Institutional & Insider Ownership

63.0% of TPG Specialty Lending shares are owned by institutional investors. Comparatively, 32.4% of FS Investment Corporation shares are owned by institutional investors. 4.8% of TPG Specialty Lending shares are owned by insiders. Comparatively, 1.0% of FS Investment Corporation shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Volatility & Risk

TPG Specialty Lending has a beta of 0.71, suggesting that its stock price is 29% less volatile than the S&P 500. Comparatively, FS Investment Corporation has a beta of 0.98, suggesting that its stock price is 2% less volatile than the S&P 500.

Summary

TPG Specialty Lending beats FS Investment Corporation on 10 of the 13 factors compared between the two stocks.

TPG Specialty Lending Company Profile

TPG Specialty Lending, Inc. is an externally managed, closed-end, non-diversified management investment company. The Company is a specialty finance company focused on lending to middle-market companies. It seeks to generate current income primarily in the United States-domiciled middle-market companies through direct originations of senior secured loans and originations of mezzanine and unsecured loans and investments in corporate bonds and equity securities. The Company invests in first-lien debt, second-lien debt, mezzanine and unsecured debt and equity and other investments. Its first-lien debt may include standalone first-lien loans; last out first-lien loans; unitranche loans and secured corporate bonds. Its second-lien debt may include secured loans and secured corporate bonds, with a secondary priority behind first-lien debt. As of December 31, 2016, the Company’s portfolio was invested across 19 different industries. The Company’s investment advisor is TSL Advisers, LLC.

FS Investment Corporation Company Profile

FS Investment Corporation is an externally managed, non-diversified, closed-end management investment company. The Company’s investment objectives are to generate current income and long-term capital appreciation. Its portfolio consists primarily of investments in senior secured loans and second lien secured loans of the private United States middle market companies and subordinated loans of the private United States companies. It may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the over-the-counter market or directly from target companies as primary market or directly originated investments. It invests in a range of industries, including capital goods; consumer services; consumer durables and apparel; materials; commercial and professional services, and diversified financials. Its investment advisor is FB Income Advisor, LLC.

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