Head to Head Review: Hercules Capital (NYSE:HTGC) versus Carlyle Secured Lending (NASDAQ:CGBD)

Hercules Capital (NYSE:HTGC) and Carlyle Secured Lending (NASDAQ:CGBD) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their dividends, analyst recommendations, risk, valuation, profitability, institutional ownership and earnings.

Dividends

Hercules Capital pays an annual dividend of $1.60 per share and has a dividend yield of 9.6%. Carlyle Secured Lending pays an annual dividend of $1.60 per share and has a dividend yield of 13.6%. Hercules Capital pays out 106.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Carlyle Secured Lending pays out 133.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Hercules Capital has increased its dividend for 1 consecutive years.

Profitability

This table compares Hercules Capital and Carlyle Secured Lending’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Hercules Capital	51.46%	16.54%	8.37%
Carlyle Secured Lending	29.71%	9.85%	4.59%

Earnings & Valuation

This table compares Hercules Capital and Carlyle Secured Lending”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Hercules Capital	$350.09 million	8.67	$262.97 million	$1.51	11.07
Carlyle Secured Lending	$79.76 million	7.49	$88.98 million	$1.20	9.78

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

Insider & Institutional Ownership

19.7% of Hercules Capital shares are held by institutional investors. Comparatively, 24.5% of Carlyle Secured Lending shares are held by institutional investors. 1.8% of Hercules Capital shares are held by company insiders. Comparatively, 0.6% of Carlyle Secured Lending shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Volatility and Risk

Hercules Capital has a beta of 0.96, indicating that its stock price is 4% less volatile than the S&P 500. Comparatively, Carlyle Secured Lending has a beta of 0.89, indicating that its stock price is 11% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings for Hercules Capital and Carlyle Secured Lending, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Hercules Capital	0	2	6	0	2.75
Carlyle Secured Lending	1	3	2	0	2.17

Hercules Capital presently has a consensus target price of $20.50, indicating a potential upside of 22.64%. Carlyle Secured Lending has a consensus target price of $14.83, indicating a potential upside of 26.46%. Given Carlyle Secured Lending’s higher probable upside, analysts plainly believe Carlyle Secured Lending is more favorable than Hercules Capital.

Summary

Hercules Capital beats Carlyle Secured Lending on 14 of the 17 factors compared between the two stocks.

About Hercules Capital

Hercules Capital, Inc. is a business development company. The firm specializing in providing venture debt, debt, senior secured loans, and growth capital to privately held venture capital-backed companies at all stages of development from startups to expansion stage including select publicly listed companies and select special opportunity lower middle market companies that require additional capital to fund acquisitions, recapitalizations and refinancing and established-stage companies. The firm provides growth capital financing solutions for capital extension; management buy-out and corporate spin-out financing solutions; company, asset specific, or intellectual property acquisition financing; convertible, subordinated and/or mezzanine loans; domestic and international corporate expansion; vendor financing; revenue acceleration by sales and marketing development, and manufacturing expansion. It provides asset-based financing with a focus on cash flow; accounts receivable facilities; equipment loans or leases; equipment acquisition; facilities build-out and/or expansion; working capital revolving lines of credit; inventory. The firm also provides bridge financing to IPO or mergers and acquisitions or technology acquisition; dividend recapitalizations and other sources of investor liquidity; cash flow financing to protect against share price volatility; competitor acquisition; pre-IPO financing for extra cash on the balance sheet; public company financing to continue asset growth and production capacity; short-term bridge financing; and strategic and intellectual property acquisition financings. It also focuses on customized financing solutions, emerging growth, mid venture, and late venture financing. The firm invests primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. The firm generally seeks to invest in companies that have been operating for at least six to 12 months prior to the date of their investment. It prefers to invest in technology, SaaS Finance, energy technology, sustainable and renewable technology, and life sciences. Within technology the firm focuses on advanced specialty materials and chemicals; communication and networking, consumer and business products; consumer products and services, digital media and consumer internet; electronics and computer hardware; enterprise software and services; gaming; healthcare services; information services; business services; media, content and information; mobile; resource management; security software; semiconductors; semiconductors and hardware; and software sector. Within energy technology, it invests in agriculture; clean technology; energy and renewable technology, fuels, and power technology; geothermal; smart grid and energy efficiency and monitoring technologies; solar; and wind. Within life sciences, the firm invests in biopharmaceuticals; biotechnology tools; diagnostics; drug discovery, drug platform, development, and delivery; medical devices and equipment; surgical devices; therapeutics; pharma services; and specialty pharmaceuticals. Within sustainable and renewables, it invests in Vehicle Technology, Energy Generation and Storage, Ag Technology, Advanced Materials, and Industry 4.0. It also invests in educational services. The firm invests primarily in United States based companies and considers investment in the West Coast, Mid-Atlantic regions, Southeast and Midwest, particularly in the areas of software, biotech, and information services. The firm prefers to invest between $5 million and $200 million in equity per transactions. It invests generally between $1 million and $40 million in companies focused primarily on business services, communications, electronics, hardware, and healthcare services. The firm invests primarily in private companies but also have investments in public companies. For equity investments, the firm seeks to represent a controlling interest in its portfolio companies which may exceed 25% of the voting securities of such companies. The firm seeks to invest a limited portion of its assets in equipment-based loans to early-stage prospective portfolio companies. These loans are generally for amounts up to $3 million but may be up to $15 million for certain energy technology venture investments. The firm allows certain debt investments have the right to convert a portion of the debt investment into equity. It also co-invests with other private equity firms. The firm seeks to exit its investments through initial public offering, a private sale of equity interest to a third party, a merger or an acquisition of the company or a purchase of the equity position by the company or one of its stockholders. The firm has structured debt with warrants which typically have maturities of between two and seven years with an average of three years; senior debt with an investment horizon of less than three years; equipment loans with an investment horizon ranging from three to four years; and equity related securities with an investment horizon ranging from three to seven years. The firm prefers to invest through its balance sheet capital. The firm formerly known as Hercules Technology Growth Capital, Inc. Hercules Capital, Inc. was founded in December 2003 and is based in San Mateo, California with additional offices in North America and Europe.

About Carlyle Secured Lending

Carlyle Secured Lending, Inc. is business development company specializing in first lien debt, senior secured loans, second lien senior secured loan unsecured debt, mezzanine debt and investments in equities. It specializes in directly investing. It specializes in middle market. It targets healthcare and pharmaceutical, aerospace and defense, high tech industries, business services, software, beverage food and tobacco, hotel gamming and leisure, banking finance insurance and in real estate sector. The fund seeks to invest across United States of America, Luxembourg, Cayman Islands, Cyprus, and United Kingdom. It invests in companies with EBITDA between $25 million and $100 million.