Analyzing Sixth Street Specialty Lending (NYSE:TSLX) & SLR Investment (NASDAQ:SLRC)

SLR Investment (NASDAQ:SLRC) and Sixth Street Specialty Lending (NYSE:TSLX) are both small-cap finance companies, but which is the superior business? We will compare the two businesses based on the strength of their analyst recommendations, dividends, risk, institutional ownership, profitability, valuation and earnings.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for SLR Investment and Sixth Street Specialty Lending, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
SLR Investment	3	2	2	0	1.86
Sixth Street Specialty Lending	1	2	5	0	2.50

SLR Investment currently has a consensus price target of $14.40, indicating a potential upside of 13.03%. Sixth Street Specialty Lending has a consensus price target of $19.83, indicating a potential upside of 15.55%. Given Sixth Street Specialty Lending’s stronger consensus rating and higher possible upside, analysts clearly believe Sixth Street Specialty Lending is more favorable than SLR Investment.

Volatility and Risk

SLR Investment has a beta of 0.64, meaning that its share price is 36% less volatile than the S&P 500. Comparatively, Sixth Street Specialty Lending has a beta of 0.6, meaning that its share price is 40% less volatile than the S&P 500.

Dividends

SLR Investment pays an annual dividend of $1.64 per share and has a dividend yield of 12.9%. Sixth Street Specialty Lending pays an annual dividend of $1.84 per share and has a dividend yield of 10.7%. SLR Investment pays out 100.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Sixth Street Specialty Lending pays out 160.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. SLR Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares SLR Investment and Sixth Street Specialty Lending’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
SLR Investment	41.81%	8.33%	3.25%
Sixth Street Specialty Lending	25.25%	11.92%	5.54%

Institutional and Insider Ownership

35.3% of SLR Investment shares are owned by institutional investors. Comparatively, 70.3% of Sixth Street Specialty Lending shares are owned by institutional investors. 8.8% of SLR Investment shares are owned by company insiders. Comparatively, 3.8% of Sixth Street Specialty Lending shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Earnings & Valuation

This table compares SLR Investment and Sixth Street Specialty Lending”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
SLR Investment	$218.54 million	3.18	$92.54 million	$1.64	7.77
Sixth Street Specialty Lending	$449.05 million	3.63	$209.99 million	$1.15	14.93

Sixth Street Specialty Lending has higher revenue and earnings than SLR Investment. SLR Investment is trading at a lower price-to-earnings ratio than Sixth Street Specialty Lending, indicating that it is currently the more affordable of the two stocks.

Summary

Sixth Street Specialty Lending beats SLR Investment on 10 of the 16 factors compared between the two stocks.

About SLR Investment

SLR Investment Corp. is a business development company specializing in secured debt (first lien unitranche and second lien), subordinated (unsecured) debt, minority equity, leveraged buyouts, acquisitions, recapitalizations, general refinancing, growth capital and strategic income-oriented control equity investments in leveraged middle market companies. The fund invests in aerospace and defense; air freight & logistics; asset management; automotive; banking; beverage, food and tobacco; building products; buildings and real estate; broadcasting and entertainment; cargo transport; commercial services and supplies; communications equipment; chemicals, plastics and rubber; containers, packaging and glass; construction & engineering; diversified/conglomerate manufacturing; consumer Finance; distributors; diversified/conglomerate services; diversified financial services; diversified real estate activities; food products; Footwear; Education Services; diversified telecommunications services; electronics; farming and agriculture; finance; grocery; health care equipment and supplies; health care facilities; education and childcare; home and office furnishing, durable consumer products; hotels, motels, inns and gaming; insurance; restaurants, leisure, amusement, and entertainment; leisure equipment tolls and services, media, multiline retail, multi sector holdings; paper and forest products; personal products; professional services, research and consulting services, software; specialty retail; textiles apparel and luxury goods, thrifts and mortgage finance, trading companies and distributors, utilities, and wireless telecommunication services; industrial conglomerates; internet software and services, IT services, machinery; mining, steel, iron, and non-precious metals; oil and gas; personal, food and miscellaneous services; printing and publishing; retail stores; telecommunications; textiles and leather; and utilities. It also invests in life sciences with focus on specialty pharmaceuticals, medical devices, biotech, health Care Providers and services; health Care technology, enabling technologies and tools. The fund primarily invests in United States. The fund’s investments generally range between $5 million and $100 million. The fund invests in companies with revenues between $50 million and $1 billion and EBITDA between $15 million and $100 million. It invests in the form of senior secured loans, mezzanine loans, and equity securities. It may also seek investments in thinly traded public companies and also make secondary investments. The fund makes non-control equity investments. It primarily exits within three years of the initial capital commitment.

About Sixth Street Specialty Lending

Sixth Street Specialty Lending, Inc. (NYSE: TSLX) is a business development company. The fund provides senior secured loans (first-lien, second-lien, and unitranche), unsecured loans, mezzanine debt, and investments in corporate bonds and equity securities and structured products, non-control structured equity, and common equity with a focus on co-investments for organic growth, acquisitions, market or product expansion, restructuring initiatives, recapitalizations, and refinancing. The fund invests in business services, software & technology, healthcare, energy, consumer & retail, manufacturing, industrials, royalty related businesses, education, and specialty finance. It seeks to finance and lending to middle market companies principally located in the United States. The fund invests in companies with enterprise value between $50 million and $1 billion or more and EBITDA between $10 million and $250 million. The transaction size is between $15 million and $350 million. The fund invests across the spectrum of the capital structure and can arrange syndicated transactions of up to $500 million and hold sizeable positions within its credits.