Ares Capital (NASDAQ:ARCC) versus Main Street Capital (NYSE:MAIN) Head-To-Head Comparison

Main Street Capital (NYSE:MAIN) and Ares Capital (NASDAQ:ARCC) are both finance companies, but which is the better investment? We will compare the two businesses based on the strength of their earnings, risk, dividends, valuation, institutional ownership, profitability and analyst recommendations.

Insider and Institutional Ownership

20.3% of Main Street Capital shares are held by institutional investors. Comparatively, 27.4% of Ares Capital shares are held by institutional investors. 4.0% of Main Street Capital shares are held by insiders. Comparatively, 0.5% of Ares Capital 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.

Profitability

This table compares Main Street Capital and Ares Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Main Street Capital	95.59%	12.39%	6.77%
Ares Capital	45.16%	10.08%	4.80%

Valuation and Earnings

This table compares Main Street Capital and Ares Capital”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Main Street Capital	$541.03 million	10.13	$508.08 million	$6.03	10.14
Ares Capital	$2.99 billion	4.94	$1.52 billion	$2.00	10.32

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

Analyst Ratings

This is a summary of current ratings and target prices for Main Street Capital and Ares Capital, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Main Street Capital	0	5	4	0	2.44
Ares Capital	0	3	7	0	2.70

Main Street Capital currently has a consensus price target of $62.43, suggesting a potential upside of 2.05%. Ares Capital has a consensus price target of $22.25, suggesting a potential upside of 7.80%. Given Ares Capital’s stronger consensus rating and higher probable upside, analysts plainly believe Ares Capital is more favorable than Main Street Capital.

Volatility and Risk

Main Street Capital has a beta of 0.8, meaning that its stock price is 20% less volatile than the S&P 500. Comparatively, Ares Capital has a beta of 0.58, meaning that its stock price is 42% less volatile than the S&P 500.

Dividends

Main Street Capital pays an annual dividend of $3.12 per share and has a dividend yield of 5.1%. Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 9.3%. Main Street Capital pays out 51.7% of its earnings in the form of a dividend. Ares Capital pays out 96.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Main Street Capital has raised its dividend for 4 consecutive years.

Summary

Main Street Capital beats Ares Capital on 9 of the 17 factors compared between the two stocks.

About Main Street Capital

Main Street Capital Corporation is a business development company specializes in equity capital to lower middle market companies. The firm specializing in recapitalizations, management buyouts, refinancing, family estate planning, management buyouts, refinancing, industry consolidation, mature, later stage emerging growth. The firm also provides debt capital to middle market companies for acquisitions, management buyouts, growth financings, recapitalizations, and refinancing. The firm seeks to partner with entrepreneurs, business owners and management teams and generally provides “one stop” financing alternatives within its lower middle market portfolio. It prefers to invest in air freight and logistics, auto components, building products, chemicals, commercial services, computers, construction and engineering, consumer finance, consumer services, electronic equipment, energy equipment and services, financial services, health care equipment, health care providers, hotels, restaurants, and leisure, internet software and services, IT Services, machinery, oil, gas and consumable fuels, paper and forest products, professional and industrial services, road and rail, software, specialty retail, telecommunication, consumer discretionary, energy, materials, technology, and transportation. The firm typically invests in lower middle market companies generally with annual revenues between $10 million and $150 million. It prefers to invest in ranging between $5 million and $100 million in equity investment and enterprise value in ranging between $3 million and $20 million. The firm typically prefers to invest in the range of $5 million and $150 million per transaction in debt investment value and in the range of $3 million and $75 million in annual EBITDA in between $3 million and $25 million in lower middle market $5 million and $75 million in credit solution. The firm’s middle market debt investments are made in businesses that are generally larger in size than its lower middle market portfolio companies. It takes 5 percent minority and up to 50 percent majority equity investments. Main Street Capital Corporation was founded in 2007 and is based in Houston, Texas with an additional office in Chojnów, Poland.

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.