Morgan Stanley Direct Lending Fund (NYSE:MSDL – Get Free Report) and OFS Capital (NASDAQ:OFS – Get Free Report) are both small-cap finance companies, but which is the better stock? We will compare the two companies based on the strength of their profitability, institutional ownership, risk, valuation, dividends, earnings and analyst recommendations.
Analyst Recommendations
This is a summary of current recommendations and price targets for Morgan Stanley Direct Lending Fund and OFS Capital, as provided by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Morgan Stanley Direct Lending Fund | 0 | 6 | 1 | 0 | 2.14 |
| OFS Capital | 1 | 2 | 0 | 0 | 1.67 |
Morgan Stanley Direct Lending Fund presently has a consensus price target of $15.50, indicating a potential upside of 19.83%. OFS Capital has a consensus price target of $7.00, indicating a potential upside of 75.44%. Given OFS Capital’s higher probable upside, analysts clearly believe OFS Capital is more favorable than Morgan Stanley Direct Lending Fund.
Profitability
This table compares Morgan Stanley Direct Lending Fund and OFS Capital’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Morgan Stanley Direct Lending Fund | 15.97% | 9.61% | 4.28% |
| OFS Capital | -62.24% | 7.46% | 2.67% |
Institutional & Insider Ownership
10.8% of OFS Capital shares are owned by institutional investors. 0.3% of Morgan Stanley Direct Lending Fund shares are owned by insiders. Comparatively, 0.5% of OFS Capital shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.
Valuation and Earnings
This table compares Morgan Stanley Direct Lending Fund and OFS Capital”s gross revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Morgan Stanley Direct Lending Fund | $397.29 million | 2.74 | $122.09 million | $0.69 | 18.75 |
| OFS Capital | $40.69 million | 1.31 | -$33.09 million | ($1.65) | -2.42 |
Morgan Stanley Direct Lending Fund has higher revenue and earnings than OFS Capital. OFS Capital is trading at a lower price-to-earnings ratio than Morgan Stanley Direct Lending Fund, indicating that it is currently the more affordable of the two stocks.
Risk & Volatility
Morgan Stanley Direct Lending Fund has a beta of 0.58, indicating that its share price is 42% less volatile than the S&P 500. Comparatively, OFS Capital has a beta of 0.86, indicating that its share price is 14% less volatile than the S&P 500.
Dividends
Morgan Stanley Direct Lending Fund pays an annual dividend of $1.80 per share and has a dividend yield of 13.9%. OFS Capital pays an annual dividend of $0.68 per share and has a dividend yield of 17.0%. Morgan Stanley Direct Lending Fund pays out 260.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital pays out -41.2% of its earnings in the form of a dividend. OFS Capital has increased its dividend for 3 consecutive years. OFS Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.
Summary
Morgan Stanley Direct Lending Fund beats OFS Capital on 10 of the 17 factors compared between the two stocks.
About Morgan Stanley Direct Lending Fund
Morgan Stanley Direct Lending Fund is a business development company. It is a non-diversified, externally managed specialty finance company focused on lending to middle-market companies. Morgan Stanley Direct Lending Fund is based in NEW YORK.
About OFS Capital
OFS Capital Corporation is a business development company specializing in direct and fund investments as well as add-on acquisitions. It provides flexible capital solutions primarily through debt capital and to a lesser extent, minority equity investments serving the needs of U.S.-based middle-market companies across a broad array of industries. It does not invest in operational turnarounds or start-up businesses. For direct, it specializes in debt and structured equity investments, recapitalizations and refinancing, management and leveraged buyouts, acquisition financings, ownership transition, shareholder liquidity events, growth capital, independent sponsor transactions, ESOPs, and minority investments in the lower middle market companies. It invests in the aerospace and defense, business services, consumer products and services, construction & building, durable goods, capital equipment, automotive, food and beverage, healthcare & pharmaceutical, specialty chemicals, transportation cargo and logistics, value added distribution, franchising, and industrial and niche manufacturing sectors. The firm invests in companies based in United States. It seeks to invest between $3 million and $35 million, revenues between $15 million and $300 million, annual EBITDA between $5 million and $50 million, and Enterprise value between $10 million and $500 million. The firm seeks to invest in companies with debt investment values between $5 million and $25 million. The fund uses senior secured, unitranche loans, first-lien, second lien, subordinated/ mezzanine loans, warrants, and preferred equity securities and common equity securities. It prefers to take a minority as well as majority stake in the investments made. It also co-invests with its partners for additional capital.
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