Head-To-Head Survey: Bain Capital Specialty Finance (NYSE:BCSF) versus New Mountain Finance (NASDAQ:NMFC)

Bain Capital Specialty Finance (NYSE:BCSF) and New Mountain Finance (NASDAQ:NMFC) are both small-cap finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their profitability, earnings, valuation, analyst recommendations, dividends, risk and institutional ownership.

Profitability

This table compares Bain Capital Specialty Finance and New Mountain Finance’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Bain Capital Specialty Finance	27.00%	10.44%	4.35%
New Mountain Finance	-18.65%	11.14%	4.63%

Institutional and Insider Ownership

32.1% of New Mountain Finance shares are held by institutional investors. 0.6% of Bain Capital Specialty Finance shares are held by insiders. Comparatively, 14.9% of New Mountain Finance shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Dividends

Bain Capital Specialty Finance pays an annual dividend of $1.68 per share and has a dividend yield of 12.8%. New Mountain Finance pays an annual dividend of $1.28 per share and has a dividend yield of 16.1%. Bain Capital Specialty Finance pays out 147.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. New Mountain Finance pays out -220.7% of its earnings in the form of a dividend. Bain Capital Specialty Finance has increased its dividend for 4 consecutive years. New Mountain Finance is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility and Risk

Bain Capital Specialty Finance has a beta of 0.59, indicating that its share price is 41% less volatile than the S&P 500. Comparatively, New Mountain Finance has a beta of 0.57, indicating that its share price is 43% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings and target prices for Bain Capital Specialty Finance and New Mountain Finance, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Bain Capital Specialty Finance	0	2	1	0	2.33
New Mountain Finance	1	6	0	0	1.86

Bain Capital Specialty Finance presently has a consensus target price of $14.00, indicating a potential upside of 6.32%. New Mountain Finance has a consensus target price of $9.25, indicating a potential upside of 16.35%. Given New Mountain Finance’s higher possible upside, analysts clearly believe New Mountain Finance is more favorable than Bain Capital Specialty Finance.

Valuation & Earnings

This table compares Bain Capital Specialty Finance and New Mountain Finance”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Bain Capital Specialty Finance	$273.24 million	3.13	$98.76 million	$1.14	11.55
New Mountain Finance	$327.08 million	2.30	$16.49 million	($0.58)	-13.71

Bain Capital Specialty Finance has higher earnings, but lower revenue than New Mountain Finance. New Mountain Finance is trading at a lower price-to-earnings ratio than Bain Capital Specialty Finance, indicating that it is currently the more affordable of the two stocks.

Summary

Bain Capital Specialty Finance beats New Mountain Finance on 9 of the 17 factors compared between the two stocks.

About Bain Capital Specialty Finance

Bain Capital Specialty Finance, Inc. is business development company specializing in direct loans to middle-market companies. The fund seeks to invest in senior investments with a first or second lien on collateral, senior first lien, stretch senior, senior second lien, unitranche, mezzanine debt, junior securities, other junior investments, and secondary purchases of assets or portfolios that primarily consist of middle-market corporate debt. It typically invests in companies with EBITDA between $10 million and $150 million.

About New Mountain Finance

New Mountain Finance Corporation (Nasdaq: NMFC), a business development company is a private equity / buyouts and loan fund specializes in directly investing and lending to middle market companies in defensive growth industries. The fund prefers investing in buyout and middle market companies. It also makes investments in debt securities at all levels of the capital structure including first and second lien debt, unsecured notes, and mezzanine securities. In some cases, its investments may also include equity interests. It targets energy, engineering and consulting services, specialty chemicals and materials, trading companies and distributors, commercial printing, diversified support services, education services, environmental and facilities services, office services and supplies, media, distributors, health care services, health care facilities, application software, business services, systems software, federal services, distribution and logistics, interactive home entertainment, telecommunication services, hydroelectric power generation, electric power generation by fossil fuels, electric power generation by nuclear fuels, health care technology, and security and alarm services. The fund seeks to invest in United States of America. It seeks to invest between $10 million and $125 million per transaction. The firm invests through both primary originations and open-market secondary purchases. It invests in companies with EBITDA between $10 million and $200 million. The fund seeks a majority stake in its portfolio companies.