Analyzing Capital Southwest (NASDAQ:CSWC) & ONEX (OTCMKTS:ONEXF)

Capital Southwest (NASDAQ:CSWC) and ONEX (OTCMKTS:ONEXF) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their valuation, dividends, earnings, analyst recommendations, profitability, institutional ownership and risk.

Valuation & Earnings

This table compares Capital Southwest and ONEX”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Capital Southwest	$204.44 million	7.15	$70.55 million	$1.81	13.43
ONEX	$899.00 million	6.54	$617.00 million	$8.87	9.66

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

Profitability

This table compares Capital Southwest and ONEX’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Capital Southwest	45.46%	13.76%	6.51%
ONEX	68.63%	7.16%	4.75%

Dividends

Capital Southwest pays an annual dividend of $2.32 per share and has a dividend yield of 9.5%. ONEX pays an annual dividend of $0.29 per share and has a dividend yield of 0.3%. Capital Southwest pays out 128.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. ONEX pays out 3.3% of its earnings in the form of a dividend. Capital Southwest has raised its dividend for 2 consecutive years. Capital Southwest is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional & Insider Ownership

23.4% of Capital Southwest shares are owned by institutional investors. Comparatively, 0.7% of ONEX shares are owned by institutional investors. 2.8% of Capital Southwest shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Analyst Ratings

This is a breakdown of recent ratings and target prices for Capital Southwest and ONEX, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Capital Southwest	0	3	6	0	2.67
ONEX	0	1	2	0	2.67

Capital Southwest currently has a consensus price target of $23.42, suggesting a potential downside of 3.64%. Given Capital Southwest’s higher probable upside, analysts clearly believe Capital Southwest is more favorable than ONEX.

Volatility and Risk

Capital Southwest has a beta of 0.71, indicating that its share price is 29% less volatile than the S&P 500. Comparatively, ONEX has a beta of 1.2, indicating that its share price is 20% more volatile than the S&P 500.

Summary

Capital Southwest beats ONEX on 10 of the 16 factors compared between the two stocks.

About Capital Southwest

Capital Southwest Corporation is a business development company specializing in credit and private equity and venture capital investments in middle market companies, mezzanine, later stage, mature, late venture, emerging growth, buyouts, industry consolidation, recapitalizations and growth capital investments. It does not invest in startups, publicly traded companies, real estate developments, project finance opportunities, oil and gas exploration businesses, troubled companies, turnarounds, and companies in which significant senior management is departing. In lower middle market, the firm typically invests in growth financing, bolt-on acquisitions, new platform acquisitions, refinancing, dividend recapitalizations, sponsor-led buyouts, and management buyouts situations. The investment structures are Unitranche debt, subordinated debt, senior debt, first and second lien debt, and preferred and common equity. The firm makes equity co-investments alongside debt investments, up to 20% of total check and only makes non-control investments. The firm is Industry agnostic, but it prefers to invest in Industrial manufacturing and services, value-added distribution, healthcare products and services, business services, specialty chemicals, food and beverage, tech-enabled services and SaaS models. The firm seeks to invest in energy services and products, industrial technologies, and specialty chemicals and products. Within energy services and products, the firm seeks to invest in each segment of the industry, including upstream, midstream and downstream, excluding exploration and production with a focus on differentiated products and services, equipment and tool rental, consumable products, and drilling and completion chemicals. Within industrial technologies, it seeks to invest in automation and process controls, handling and packaging equipment, industrial filtration and fluid handling, measurement, monitoring and testing, professional tools, and sensors and instrumentation. Within and specialty chemicals and products, the firm seeks to invest in businesses that develop and manufacture highly differentiated chemicals and products including adhesives, coatings and sealants, catalysts and absorbents, cosmeceuticals, fine chemicals, flavors and fragrances, performance lubricants, polymers, plastics and composites, chemical dispensing and filtration equipment, professional and industrial trade consumables and tools, engineered solutions for HVAC, plumbing, and electrical installations, specified high performance materials for fire protection and oilfield applications. It may also invest in exceptional opportunities in building products. The firm seeks to invest in the United States and North America. The firm seeks to make investments ranging from $5 million and $25 million in securities. It leads $5 to $70 million financings, Its Target holds of $5 million and $45 million, and the firm is willing to backstop up to $55mm with an active network of co-investors. It seeks to invest in the firm with minimum EBITDA is $3 million and $25 million. In addition to making direct investments, the firm allocates capital to syndicated first and second lien term loans in the upper middle market. Criteria for Upper Middle Market Syndicated 1st Lien is EBITDA Size more than $30 million, Closing Leverage greater than 4 times, investment hold size between $5 million and $7 million up to $15mm with senior loan fund, investment yield greater than 6.5%. Criteria for Upper Middle Market Syndicated 2nd Lien is EBITDA Size more than $50 million, Closing Leverage greater than 6 times, investment hold size between $5 million and $7 million, investment yield greater than 9%. It prefers to take a majority and minority stake. The firm has the flexibility to hold investments for very long period in its portfolio companies. It may also invest through warrants. The firm prefers to take Board participation in its portfolio companies. Capital Southwest Corporation was founded on April 19, 1961 and is based in Dallas, Texas.

About ONEX

Onex Corporation is a private equity firm specializing in acquisitions and platform acquisitions. The firm makes investments in buyouts, large- middle market, large-cap, mid-cap, and small-cap market and distressed companies. It also invests in recapitalization, growth capital, corporate carve-outs of subsidiaries and mission-critical supply divisions from multinational corporations, operational restructurings of undervalued businesses, and builds up. The firm seeks to invest in technology, electronics manufacturing services, industrial, aerospace, healthcare, retail, restaurants, industrials products, customer care services, metal services, building products, entertainment, gaming, cabinetry products, commercial vehicles, commercial and investment banking, financial services, commercial and multi-unit residential real estate. It invests in global businesses headquartered in North America, including United States and Canada, or Europe. The firm seeks to invest between $125 million and $1 billion in companies that have minimum revenues of $300 million. It does not consider size if the company is in an industry in which the firm already has presence. The firm seeks to make direct as well as co-investments through managed private equity, real estate and credit funds. It seeks to acquire a control position in its portfolio companies. Onex Corporation was founded in 1984 and is based in Toronto, Canada with additional offices in New York, New York; Englewood Cliffs, New Jersey; Boston, Massachusetts and London, United Kingdom.