Critical Survey: Cannae (NYSE:CNNE) vs. Prospect Capital (NASDAQ:PSEC)

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

Earnings & Valuation

This table compares Prospect Capital and Cannae”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Prospect Capital	$719.44 million	1.69	-$469.92 million	($1.34)	-1.95
Cannae	$452.50 million	2.27	-$304.60 million	($6.70)	-2.73

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

Dividends

Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 20.7%. Cannae pays an annual dividend of $0.60 per share and has a dividend yield of 3.3%. Prospect Capital pays out -40.3% of its earnings in the form of a dividend. Cannae pays out -9.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Prospect Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Prospect Capital and Cannae, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Prospect Capital	1	0	0	0	1.00
Cannae	1	0	2	0	2.33

Prospect Capital currently has a consensus target price of $2.50, indicating a potential downside of 4.21%. Cannae has a consensus target price of $24.00, indicating a potential upside of 31.15%. Given Cannae’s stronger consensus rating and higher probable upside, analysts clearly believe Cannae is more favorable than Prospect Capital.

Risk & Volatility

Prospect Capital has a beta of 0.85, meaning that its share price is 15% less volatile than the S&P 500. Comparatively, Cannae has a beta of 1.08, meaning that its share price is 8% more volatile than the S&P 500.

Institutional & Insider Ownership

9.1% of Prospect Capital shares are held by institutional investors. Comparatively, 88.1% of Cannae shares are held by institutional investors. 28.0% of Prospect Capital shares are held by company insiders. Comparatively, 10.9% of Cannae shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Profitability

This table compares Prospect Capital and Cannae’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Prospect Capital	-69.68%	12.14%	5.59%
Cannae	-94.12%	-18.19%	-14.58%

Summary

Prospect Capital beats Cannae on 9 of the 16 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 Cannae

Cannae Holdings, Inc. is a principal investment firm. The firm primarily invests in restaurants, technology enabled healthcare services, financial services and more. It takes both minority and majority stakes. Cannae Holdings, Inc. was founded in 2014 and is based in Las Vegas, Nevada.