Head to Head Analysis: State Street (NYSE:STT) and Capital Southwest (NASDAQ:CSWC)

Capital Southwest (NASDAQ:CSWC) and State Street (NYSE:STT) are both finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their analyst recommendations, earnings, institutional ownership, dividends, profitability, risk and valuation.

Dividends

Capital Southwest pays an annual dividend of $2.32 per share and has a dividend yield of 10.0%. State Street pays an annual dividend of $3.68 per share and has a dividend yield of 2.0%. 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. State Street pays out 32.5% of its earnings in the form of a dividend. Capital Southwest has raised its dividend for 2 consecutive years and State Street has raised its dividend for 13 consecutive years.

Valuation and Earnings

This table compares Capital Southwest and State Street”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Capital Southwest	$232.10 million	6.36	$113.00 million	$1.81	12.79
State Street	$15.06 billion	3.28	$2.94 billion	$11.34	15.88

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

Insider and Institutional Ownership

23.4% of Capital Southwest shares are owned by institutional investors. Comparatively, 87.4% of State Street shares are owned by institutional investors. 2.7% of Capital Southwest shares are owned by company insiders. Comparatively, 0.3% of State Street shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Volatility & Risk

Capital Southwest has a beta of 0.7, suggesting that its stock price is 30% less volatile than the S&P 500. Comparatively, State Street has a beta of 1.41, suggesting that its stock price is 41% more volatile than the S&P 500.

Analyst Ratings

This is a summary of current recommendations for Capital Southwest and State Street, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Capital Southwest	0	3	6	0	2.67
State Street	0	6	8	2	2.75

Capital Southwest presently has a consensus target price of $23.60, indicating a potential upside of 1.94%. State Street has a consensus target price of $185.38, indicating a potential upside of 2.96%. Given State Street’s stronger consensus rating and higher possible upside, analysts clearly believe State Street is more favorable than Capital Southwest.

Profitability

This table compares Capital Southwest and State Street’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Capital Southwest	46.68%	13.88%	6.45%
State Street	15.02%	15.26%	0.96%

Summary

State Street beats Capital Southwest on 13 of the 18 factors compared between the two stocks.

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.

About State Street

State Street Corporation, through its subsidiaries, provides a range of financial products and services to institutional investors worldwide. The company offers investment servicing products and services, including custody, accounting, regulatory reporting, investor, and performance and analytics; middle office products, such as IBOR, transaction management, loans, cash, derivatives and collateral, record keeping, and client reporting and investment analytics; finance leasing; foreign exchange, and brokerage and other trading services; securities finance and enhanced custody products; deposit and short-term investment facilities; investment manager and alternative investment manager operations outsourcing; performance, risk, and compliance analytics; and financial data management to support institutional investors. It also engages in the provision of portfolio management and risk analytics, as well as trading and post-trade settlement services with integrated compliance and managed data. In addition, the company offers investment management strategies and products, such as core and enhanced indexing, multi-asset strategies, active quantitative and fundamental active capabilities, and alternative investment strategies. Further, it provides services and solutions, including environmental, social, and governance investing; defined benefit and defined contribution; and global fiduciary solutions, as well as exchange-traded funds under the SPDR ETF brand. The company provides its products and services to mutual funds, collective investment funds, UCITS, hedge funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments, and investment managers. State Street Corporation was founded in 1792 and is headquartered in Boston, Massachusetts.