Critical Comparison: Prospect Capital (NASDAQ:PSEC) versus Westwood Holdings Group (NYSE:WHG)

Westwood Holdings Group (NYSE:WHG) and Prospect Capital (NASDAQ:PSEC) are both small-cap finance companies, but which is the better business? We will compare the two companies based on the strength of their institutional ownership, risk, earnings, profitability, analyst recommendations, dividends and valuation.

Volatility & Risk

Westwood Holdings Group has a beta of 0.62, suggesting that its share price is 38% less volatile than the S&P 500. Comparatively, Prospect Capital has a beta of 0.82, suggesting that its share price is 18% less volatile than the S&P 500.

Earnings & Valuation

This table compares Westwood Holdings Group and Prospect Capital”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Westwood Holdings Group	$97.76 million	1.56	$7.06 million	$0.83	19.39
Prospect Capital	$719.44 million	1.64	-$469.92 million	($0.37)	-6.35

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

Insider & Institutional Ownership

56.6% of Westwood Holdings Group shares are held by institutional investors. Comparatively, 9.1% of Prospect Capital shares are held by institutional investors. 17.4% of Westwood Holdings Group shares are held by insiders. Comparatively, 0.0% of Prospect Capital shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Dividends

Westwood Holdings Group pays an annual dividend of $0.60 per share and has a dividend yield of 3.7%. Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 23.0%. Westwood Holdings Group pays out 72.3% of its earnings in the form of a dividend. Prospect Capital pays out -145.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Prospect Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Recommendations

This is a summary of recent ratings for Westwood Holdings Group and Prospect Capital, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Westwood Holdings Group	0	0	1	0	3.00
Prospect Capital	2	0	0	0	1.00

Prospect Capital has a consensus target price of $2.00, suggesting a potential downside of 14.89%. Given Prospect Capital’s higher probable upside, analysts plainly believe Prospect Capital is more favorable than Westwood Holdings Group.

Profitability

This table compares Westwood Holdings Group and Prospect Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Westwood Holdings Group	7.40%	8.34%	6.82%
Prospect Capital	-10.42%	12.03%	5.43%

Summary

Westwood Holdings Group beats Prospect Capital on 9 of the 16 factors compared between the two stocks.

About Westwood Holdings Group

Westwood Holdings Group, Inc., through its subsidiaries, manages investment assets and provides services for its clients. The company operates in two segments, Advisory and Trust. The Advisory segment provides investment advisory services to corporate retirement plans, public retirement plans, endowments, foundations, individuals, and the Westwood Funds; and investment sub-advisory services to mutual funds, pooled investment vehicles, and its Trust segment. The Trust segment offers trust and custodial services; and participates in common trust funds that it sponsors to institutions and high net worth individuals. Westwood Holdings Group, Inc. was founded in 1983 and is based in Dallas, Texas.

About Prospect Capital

Prospect Capital Corporation is a business development company. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth, leveraged buyouts, refinancing, acquisitions, recapitalizations, turnaround, growth capital, development, capital expenditures and subordinated debt tranches of collateralized loan obligations, cash flow term loans, market place lending and bridge transactions. It also makes real estate investments particularly in multi-family residential real estate asset class. The fund makes secured debt, senior debt, senior and secured term loans, unitranche debt, first-lien and second lien, private debt, private equity, mezzanine debt, and equity investments in private and microcap public businesses. It focuses on both primary origination and secondary loans/portfolios and invests in situations like debt financings for private equity sponsors, acquisitions, dividend recapitalizations, growth financings, bridge loans, cash flow term loans, real estate financings/investments. It also focuses on investing in small-sized and medium-sized private companies rather than large public companies. The fund typically invests across all industry sectors, with a particular expertise in the energy and industrial sectors. It invests in aerospace and defense, chemicals, conglomerate services, consumer services, ecological, electronics, financial services, machinery, manufacturing, media, pharmaceuticals, retail, software, specialty minerals, textiles and leather, transportation, oil and gas production, coal production, materials, industrials, consumer discretionary, information technology, utilities, pipeline, storage, power generation and distribution, renewable and clean energy, oilfield services, healthcare, food and beverage, education, business services, and other select sectors. It prefers to invest in the United States and Canada. The fund seeks to invest between $10 million to $500 million per transaction in companies with EBITDA between $5 million and $150 million, sales value between $25 million and $500 million, and enterprise value between $5 million and $1000 million. It fund also co-invests for larger deals. The fund seeks control acquisitions by providing multiple levels of the capital structure. The fund focuses on sole, agented, club, or syndicated deals.