Prospect Capital (NASDAQ:PSEC) and Franklin Resources (NYSE:BEN) Critical Survey

Prospect Capital (NASDAQ:PSEC) and Franklin Resources (NYSE:BEN) are both finance companies, but which is the superior stock? We will compare the two businesses based on the strength of their analyst recommendations, earnings, valuation, dividends, institutional ownership, profitability and risk.

Profitability

This table compares Prospect Capital and Franklin Resources’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Prospect Capital	-10.42%	12.03%	5.43%
Franklin Resources	8.12%	10.58%	4.21%

Analyst Recommendations

This is a summary of recent ratings and price targets for Prospect Capital and Franklin Resources, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Prospect Capital	2	0	0	0	1.00
Franklin Resources	2	6	3	0	2.09

Prospect Capital presently has a consensus price target of $2.00, suggesting a potential downside of 17.01%. Franklin Resources has a consensus price target of $29.56, suggesting a potential downside of 4.87%. Given Franklin Resources’ stronger consensus rating and higher possible upside, analysts clearly believe Franklin Resources is more favorable than Prospect Capital.

Volatility & Risk

Prospect Capital has a beta of 0.82, indicating that its stock price is 18% less volatile than the S&P 500. Comparatively, Franklin Resources has a beta of 1.56, indicating that its stock price is 56% more volatile than the S&P 500.

Insider & Institutional Ownership

9.1% of Prospect Capital shares are held by institutional investors. Comparatively, 47.6% of Franklin Resources shares are held by institutional investors. 0.0% of Prospect Capital shares are held by insiders. Comparatively, 23.4% of Franklin Resources shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Earnings & Valuation

This table compares Prospect Capital and Franklin Resources”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Prospect Capital	$719.44 million	1.68	-$469.92 million	($0.37)	-6.51
Franklin Resources	$8.77 billion	1.84	$524.90 million	$1.31	23.72

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

Dividends

Prospect Capital pays an annual dividend of $0.42 per share and has a dividend yield of 17.4%. Franklin Resources pays an annual dividend of $1.32 per share and has a dividend yield of 4.2%. Prospect Capital pays out -113.5% of its earnings in the form of a dividend. Franklin Resources pays out 100.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Franklin Resources has increased its dividend for 45 consecutive years. Prospect Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Franklin Resources beats Prospect Capital on 13 of the 17 factors compared between the two stocks.

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.

About Franklin Resources

Franklin Resources, Inc. is a publicly owned asset management holding company. Through its subsidiaries, the firm provides its services to individuals, institutions, pension plans, trusts, and partnerships. It launches equity, fixed income, balanced, and multi-asset mutual funds through its subsidiaries. The firm invests in the public equity, fixed income, and alternative markets. Franklin Resources, Inc. was founded in 1947 and is based in San Mateo, California with an additional office in Calgary, Canada; Dubai, United Arab Emirates; Edinburgh, United Kingdom; Fort Lauderdale, United States; Hyderabad, India; London, United Kingdom; Rancho Cordova, United states; Shanghai, China; Singapore; Stamford, United States; and Vienna, Austria.