Critical Review: Solar Capital (SLRC) and MFS Municipal Income Trust (MFM)

Solar Capital (NASDAQ:SLRC) and MFS Municipal Income Trust (NYSE:MFM) are both small-cap finance companies, but which is the better investment? We will compare the two companies based on the strength of their profitability, institutional ownership, analyst recommendations, dividends, risk, earnings and valuation.

Valuation and Earnings

This table compares Solar Capital and MFS Municipal Income Trust’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Solar Capital $153.53 million 5.81 $66.87 million $1.77 11.93
MFS Municipal Income Trust N/A N/A N/A N/A N/A

Solar Capital has higher revenue and earnings than MFS Municipal Income Trust.

Volatility and Risk

Solar Capital has a beta of 0.73, meaning that its stock price is 27% less volatile than the S&P 500. Comparatively, MFS Municipal Income Trust has a beta of 0.25, meaning that its stock price is 75% less volatile than the S&P 500.

Insider and Institutional Ownership

57.5% of Solar Capital shares are held by institutional investors. Comparatively, 12.5% of MFS Municipal Income Trust shares are held by institutional investors. 5.9% of Solar Capital shares are held by company insiders. Comparatively, 0.8% of MFS Municipal Income Trust shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Profitability

This table compares Solar Capital and MFS Municipal Income Trust’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Solar Capital 46.58% 8.05% 4.38%
MFS Municipal Income Trust N/A N/A N/A

Dividends

Solar Capital pays an annual dividend of $1.64 per share and has a dividend yield of 7.8%. MFS Municipal Income Trust pays an annual dividend of $0.38 per share and has a dividend yield of 5.6%. Solar Capital pays out 92.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Analyst Ratings

This is a summary of recent recommendations and price targets for Solar Capital and MFS Municipal Income Trust, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Solar Capital 0 1 3 0 2.75
MFS Municipal Income Trust 0 0 0 0 N/A

Solar Capital presently has a consensus price target of $22.38, suggesting a potential upside of 5.94%. Given Solar Capital’s higher possible upside, research analysts plainly believe Solar Capital is more favorable than MFS Municipal Income Trust.

Summary

Solar Capital beats MFS Municipal Income Trust on 10 of the 11 factors compared between the two stocks.

Solar Capital Company Profile

Solar Capital Ltd. is a business development company specializing in secured debt (first lien unitranche and second lien), subordinated (unsecured) debt, minority equity, 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 sctivities; 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.

MFS Municipal Income Trust Company Profile

MFS Municipal Income Trust is a close ended fixed income mutual fund launched and managed by Massachusetts Financial Services Company. The fund invests in fixed income markets of the United States. It primarily invests in tax-exempt bonds and tax-exempt notes. The fund benchmarks the performance of its portfolio against Barclays Municipal Bond Index. MFS Municipal Income Trust was founded in November 25, 1986 and and is domiciled in United States.

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