Main Street Capital (MAIN) & Sonic (SONC) Critical Analysis

Main Street Capital (NYSE:MAIN) and Sonic (NASDAQ:SONC) are both finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their risk, earnings, analyst recommendations, valuation, profitability, dividends and institutional ownership.

Dividends

Main Street Capital pays an annual dividend of $2.40 per share and has a dividend yield of 5.9%. Sonic pays an annual dividend of $0.64 per share and has a dividend yield of 1.5%. Main Street Capital pays out 92.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Sonic pays out 43.0% of its earnings in the form of a dividend. Main Street Capital has increased its dividend for 8 consecutive years and Sonic has increased its dividend for 4 consecutive years. Main Street Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.



Risk & Volatility

Main Street Capital has a beta of 0.96, indicating that its stock price is 4% less volatile than the S&P 500. Comparatively, Sonic has a beta of 1.32, indicating that its stock price is 32% more volatile than the S&P 500.

Earnings & Valuation

This table compares Main Street Capital and Sonic’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Main Street Capital $233.35 million 10.74 $168.21 million $2.60 15.58
Sonic $423.59 million 3.66 $71.20 million $1.49 29.19

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

Analyst Ratings

This is a summary of current ratings for Main Street Capital and Sonic, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Main Street Capital 0 3 1 0 2.25
Sonic 0 10 1 0 2.09

Main Street Capital currently has a consensus price target of $38.50, suggesting a potential downside of 4.94%. Sonic has a consensus price target of $38.00, suggesting a potential downside of 12.62%. Given Main Street Capital’s stronger consensus rating and higher possible upside, equities research analysts clearly believe Main Street Capital is more favorable than Sonic.

Profitability

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

Net Margins Return on Equity Return on Assets
Main Street Capital 73.33% 10.78% 6.33%
Sonic 16.81% -21.64% 10.39%

Insider and Institutional Ownership

23.1% of Main Street Capital shares are owned by institutional investors. Comparatively, 89.1% of Sonic shares are owned by institutional investors. 5.4% of Main Street Capital shares are owned by insiders. Comparatively, 8.3% of Sonic shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Summary

Main Street Capital beats Sonic on 9 of the 16 factors compared between the two stocks.

About Main Street Capital

Main Street Capital Corporation is a business development company specializing in long- term equity and debt investments in small and lower middle market companies. The firm focuses on investments in, subordinated loans, private equity, venture debt, mezzanine investments, mature, mid venture, industry consolidation, later stage, late venture, emerging growth, management buyouts, change of control transactions, ownership transitions, recapitalizations, strategic acquisitions, refinancing, business expansion capital, growth financings, family estate planning, and other growth initiatives primarily for later stage businesses. It invests in consumer discretionary, consumer staples, energy, healthcare, industrials, information technology, manufacturing, media, materials, telecommunication services, and utilities sectors. It does not seek to invest in start-up companies or companies with speculative business plans. It seeks to invest in traditional or basic businesses. The firm primarily invests in companies based in the Southern, South Central, and Southwestern regions of the United States but also considers other domestic investment opportunities. It typically invests between $2 million and $75 million in equity and $5 million to $50 million in debt, revenue between $10 million and $150 million, enterprise value between $3 million and $50 million, and EBITDA between $1 million and $20 million. The firm seeks to charge a fixed interest rate between 12 percent and 14 percent, payable in cash, in case of its mezzanine loan investments. The firm typically invests in the form of term debt with equity participation and/or direct equity investments. It prefers to maintain fully diluted minority and majority equity positions in its portfolio companies of 5 percent to 50 percent, and may have controlling interests in some instances. The firm also co-invests with other investment firms. It seeks to exit its debt investments through the repayment of the investment from internally generated cash flow and/or refinancing within a period of three to seven years. It participates in warrants, PIK (Payment in Kind) interest, convertible securities, junior secured or unsecured, senior secured debt, unitranche debt, equity related, common equity, and preferred equity. Main Street Capital Corporation was incorporated on March 9, 2007 and is based at Houston, Texas.

About Sonic

Sonic Corp., through its subsidiaries, operates and franchises a chain of drive-in restaurants in the United States. As of August 31, 2018, the company operated 3,606 Sonic Drive-Ins in 45 states, including 3,427 Drive-Ins owned and operated by franchisees; and 179 Drive-Ins owned and operated by the company. The company also owns and leases 162 properties; and sublease 48 properties to franchisees and other parties. Sonic Corp. was founded in 1953 and is headquartered in Oklahoma City, Oklahoma.

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