Head-To-Head Contrast: Main Street Capital (NYSE:MAIN) vs. Capital Southwest (NASDAQ:CSWC)
by Danessa Lincoln · The Markets DailyMain Street Capital (NYSE:MAIN – Get Free Report) and Capital Southwest (NASDAQ:CSWC – Get Free Report) are both finance companies, but which is the superior business? We will contrast the two companies based on the strength of their earnings, risk, analyst recommendations, dividends, institutional ownership, valuation and profitability.
Profitability
This table compares Main Street Capital and Capital Southwest’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Main Street Capital | 78.49% | 11.80% | 6.32% |
| Capital Southwest | 46.68% | 13.88% | 6.45% |
Analyst Ratings
This is a breakdown of recent recommendations for Main Street Capital and Capital Southwest, as reported by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Main Street Capital | 0 | 6 | 4 | 0 | 2.40 |
| Capital Southwest | 0 | 3 | 6 | 0 | 2.67 |
Main Street Capital currently has a consensus target price of $60.83, indicating a potential upside of 11.16%. Capital Southwest has a consensus target price of $23.60, indicating a potential upside of 2.43%. Given Main Street Capital’s higher possible upside, equities analysts plainly believe Main Street Capital is more favorable than Capital Southwest.
Dividends
Main Street Capital pays an annual dividend of $3.18 per share and has a dividend yield of 5.8%. Capital Southwest pays an annual dividend of $2.32 per share and has a dividend yield of 10.1%. Main Street Capital pays out 64.1% of its earnings in the form of a dividend. 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. Main Street Capital has increased its dividend for 4 consecutive years and Capital Southwest has increased its dividend for 2 consecutive years.
Institutional and Insider Ownership
20.3% of Main Street Capital shares are held by institutional investors. Comparatively, 23.4% of Capital Southwest shares are held by institutional investors. 3.8% of Main Street Capital shares are held by insiders. Comparatively, 2.7% of Capital Southwest shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.
Valuation & Earnings
This table compares Main Street Capital and Capital Southwest”s gross revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Main Street Capital | $566.39 million | 9.04 | $493.40 million | $4.96 | 11.03 |
| Capital Southwest | $232.10 million | 6.33 | $113.00 million | $1.81 | 12.73 |
Main Street Capital has higher revenue and earnings than Capital Southwest. Main Street Capital is trading at a lower price-to-earnings ratio than Capital Southwest, indicating that it is currently the more affordable of the two stocks.
Volatility & Risk
Main Street Capital has a beta of 0.72, indicating that its share price is 28% less volatile than the S&P 500. Comparatively, Capital Southwest has a beta of 0.7, indicating that its share price is 30% less volatile than the S&P 500.
Summary
Main Street Capital beats Capital Southwest on 10 of the 17 factors compared between the two stocks.
About Main Street Capital
Main Street Capital Corporation is a business development company specializes in equity capital to lower middle market companies. The firm specializing in recapitalizations, management buyouts, refinancing, family estate planning, management buyouts, refinancing, industry consolidation, mature, later stage emerging growth. The firm also provides debt capital to middle market companies for acquisitions, management buyouts, growth financings, recapitalizations, and refinancing. The firm seeks to partner with entrepreneurs, business owners and management teams and generally provides “one stop” financing alternatives within its lower middle market portfolio. It prefers to invest in air freight and logistics, auto components, building products, chemicals, commercial services, computers, construction and engineering, consumer finance, consumer services, electronic equipment, energy equipment and services, financial services, health care equipment, health care providers, hotels, restaurants, and leisure, internet software and services, IT Services, machinery, oil, gas and consumable fuels, paper and forest products, professional and industrial services, road and rail, software, specialty retail, telecommunication, consumer discretionary, energy, materials, technology, and transportation. The firm typically invests in lower middle market companies generally with annual revenues between $10 million and $150 million. It prefers to invest in ranging between $5 million and $100 million in equity investment and enterprise value in ranging between $3 million and $20 million. The firm typically prefers to invest in the range of $5 million and $150 million per transaction in debt investment value and in the range of $3 million and $75 million in annual EBITDA in between $3 million and $25 million in lower middle market $5 million and $75 million in credit solution. The firm’s middle market debt investments are made in businesses that are generally larger in size than its lower middle market portfolio companies. It takes 5 percent minority and up to 50 percent majority equity investments. Main Street Capital Corporation was founded in 2007 and is based in Houston, Texas with an additional office in Chojnów, Poland.
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.