Ares Capital (NASDAQ:ARCC) vs. FS KKR Capital (NYSE:FSK) Head to Head Analysis

FS KKR Capital (NYSE:FSK) and Ares Capital (NASDAQ:ARCC) are both finance companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, profitability, earnings, analyst recommendations, institutional ownership, risk and valuation.

Insider and Institutional Ownership

36.3% of FS KKR Capital shares are owned by institutional investors. Comparatively, 27.4% of Ares Capital shares are owned by institutional investors. 0.3% of FS KKR Capital shares are owned by insiders. Comparatively, 0.5% of Ares Capital shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Earnings & Valuation

This table compares FS KKR Capital and Ares Capital”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
FS KKR Capital	$1.52 billion	2.04	$11.00 million	$0.03	368.50
Ares Capital	$3.05 billion	4.46	$1.30 billion	$1.86	10.19

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
FS KKR Capital	0.72%	5.21%	2.25%
Ares Capital	42.56%	9.89%	4.66%

Dividends

FS KKR Capital pays an annual dividend of $1.80 per share and has a dividend yield of 16.3%. Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.1%. FS KKR Capital pays out 6,000.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Ares Capital pays out 103.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Volatility and Risk

FS KKR Capital has a beta of 0.83, indicating that its share price is 17% less volatile than the S&P 500. Comparatively, Ares Capital has a beta of 0.58, indicating that its share price is 42% less volatile than the S&P 500.

Analyst Ratings

This is a summary of recent recommendations for FS KKR Capital and Ares Capital, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
FS KKR Capital	2	7	0	0	1.78
Ares Capital	0	2	7	0	2.78

FS KKR Capital currently has a consensus target price of $12.50, suggesting a potential upside of 13.07%. Ares Capital has a consensus target price of $21.25, suggesting a potential upside of 12.08%. Given FS KKR Capital’s higher possible upside, research analysts plainly believe FS KKR Capital is more favorable than Ares Capital.

Summary

Ares Capital beats FS KKR Capital on 11 of the 16 factors compared between the two stocks.

About FS KKR Capital

FS KKR Capital Corp. is a business development company specializing in investments in debt securities. It provides customized credit solutions to private middle market U.S. companies. It invest primarily in the senior secured debt and, to a lesser extent, the subordinated debt of private middle market U.S. companies. It seeks to purchase interests in loans through secondary market transactions or directly from the target companies as primary market investments. It also seeks to invest in first lien senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans, or mezzanine loans. In connection with the debt investments, the firm also receives equity interests such as warrants or options as additional consideration. It also seek to purchase minority interests in the form of common or preferred equity in our target companies, either in conjunction with one of the debt investments or through a co-investment with a financial sponsor. Additionally, on an opportunistic basis, the fund may also invest in corporate bonds and similar debt securities. The fund does not seek to invest in start-up companies, turnaround situations, or companies with speculative business plans. It seeks to invest in small and middle-market companies based in United States. The fund seeks to invest in firms with annual revenue between $10 million to $2.5 billion. It focus on providing customized one-stop credit solutions to private upper middle market companies with annual EBITDA of $50 million to $100 million at the time of investment. It seeks to exit from securities by selling them in a privately negotiated over- the- counter market. For any investments that are not able to be sold within the secondary market, the firm seeks to exit such investments through repayment, an initial public offering of equity securities, merger, sale or recapitalization.

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.