Capital Southwest (CSWC) AI Stock Analysis

• Market Cap: $997.98M
• Dividend Yield: 11.71%
• Average Volume (3M): 723.48K
• Price to Earnings (P/E): 14.2
• Beta (1Y): 0.57
• Revenue Growth: 4.85%
• EPS Growth: -37.38%
• Country: US
• Employees: 27
• Sector: Financial
• Sector Strength: 79
• Industry: Asset Management
• EPS (TTM): 1.39
• Shares Outstanding: 50,581,840
• 10 Day Avg. Volume: 924,359
• 30 Day Avg. Volume: 723,483
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): 70.21
• Price to Cash Flow (P/CF): -1.70
• P/FCF Ratio: 0.00
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $23.50
• Price Target Upside: 19.11% Upside
• Rating Consensus: Hold
• Number of Analyst Covering: 1

Capital Southwest's strong financial performance and attractive valuation are tempered by cash flow challenges and moderate leverage. Technical indicators and positive earnings call sentiment contribute to a solid overall stock score, reflecting balanced growth prospects and income potential.

Positive Factors

Earnings

Capital Southwest reported solid earnings with interest and dividend income totaling $47M, and fee income rising significantly compared to the previous quarter.

Investment Portfolio

The investment portfolio increased 13% sequentially to $1.70B, driven by strong originations, which is a positive indication of growth.

Negative Factors

Industry Competition

Competition across the industry remains fierce, putting pressure on spreads in the direct lending market.

Portfolio Yields

Lower base rates are putting downward pressure on portfolio yields, which is a challenge for CSWC.

Capital Southwest Business Overview & Revenue Model

Company Description

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, 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. 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. The firm seeks to make investments ranging from $5 to $25 million in securities. It seeks to make equity investments ranging from $5 million to $50 million and debt investments between $5 million and $20 million and co-invest in transaction size up to $40 million. It prefers to invest in companies with revenues approaching above $10 million, profitable operations, historical growth rate of at least 15 percent per year. Within the lower middle market, it seeks to invest in with less than $15 million in EBITDA and also opportunistically invests in the upper middle market, generally defined as companies with EBITDA in excess of $50 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, 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.

How the Company Makes Money

Capital Southwest makes money primarily through interest income and fees generated from its loan and investment portfolio. The company provides senior and subordinated debt, as well as equity investments, to middle-market businesses. Interest income from these debt instruments forms a significant portion of its revenue. Additionally, Capital Southwest may earn income through equity appreciation and dividends from its equity investments. The company also benefits from origination and structuring fees associated with the financing deals it arranges. Partnerships with private equity sponsors and relationships with management teams of portfolio companies further enhance its ability to generate earnings.

Capital Southwest Financial Statement Overview

Summary

Capital Southwest demonstrates strong revenue growth and profitability with high profit margins. However, cash flow challenges and moderate leverage indicate potential risks, highlighting the need for strategic cash management and cost control.

Income Statement

The company shows strong profitability with a TTM gross profit margin of 97.77% and a net profit margin of 47.57%. Revenue growth is impressive with a significant increase from the previous year, indicating a positive growth trajectory. However, the EBIT margin of 71.54% and EBITDA margin of 72.59% show some room for improvement compared to their gross margins, suggesting potential cost management opportunities.

Balance Sheet

The balance sheet reveals a reasonable debt-to-equity ratio of 0.47, indicating moderate leverage. Return on equity is robust at 9.69%, suggesting effective use of shareholder capital. However, the equity ratio of 46.42% suggests a balanced but cautious approach to financing assets, indicating moderate risk exposure.

Cash Flow

The cash flow statement indicates challenges with negative operating cash flow, which is concerning for liquidity. Free cash flow remains negative, highlighting cash management issues. The free cash flow to net income ratio is negative, suggesting operational inefficiencies. Positive financing cash flow offsets some of these concerns, but reliance on financing is evident.

Breakdown
TTM	Mar 2024	Mar 2023	Mar 2022	Mar 2021	Mar 2020
Income Statement		Total Revenue
169.22M	178.13M	61.45M	83.00M	72.58M	62.04M
	Gross Profit
165.45M	178.13M	58.70M	80.77M	70.61M	-236.00K
	EBIT
90.35M	158.34M	68.94M	66.76M	55.56M	-16.14M
	EBITDA
122.84M	158.34M	71.69M	65.46M	54.02M	-1.36M
	Net Income Common Stockholders
66.46M	83.39M	33.09M	42.81M	50.88M	-22.35M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
20.53M	32.27M	21.59M	11.43M	31.61M	13.74M
	Total Assets
402.85M	1.56B	1.26B	973.96M	735.58M	584.96M
	Total Debt
90.24M	774.05M	637.64M	528.59M	381.30M	303.30M
	Net Debt
69.71M	741.78M	616.06M	517.16M	349.69M	289.55M
	Total Liabilities
104.32M	801.08M	667.28M	553.09M	381.30M	303.30M
	Stockholders Equity
298.53M	755.68M	590.41M	420.87M	336.25M	272.22M
Cash Flow		Free Cash Flow
-130.67M	-188.51M	-227.38M	-184.67M	-68.25M	-47.95M
	Operating Cash Flow
-130.66M	-188.50M	-227.10M	-182.68M	-68.25M	-47.95M
	Investing Cash Flow
-131.24M	-13.00K	-281.00K	-2.00M	-103.92M	-72.85M
	Financing Cash Flow
274.31M	199.20M	237.53M	164.49M	86.12M	51.77M

Capital Southwest Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 19.73
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Negative
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For CSWC, the sentiment is Negative. The current price of 19.73 is below the 20-day moving average (MA) of 21.52, below the 50-day MA of 21.97, and below the 200-day MA of 22.55, indicating a bearish trend. The MACD of 0.09 indicates Negative momentum. The RSI at 55.02 is Neutral, neither overbought nor oversold. The STOCH value of 63.90 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for CSWC.

Capital Southwest Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
TRIN	80 Outperform	$890.32M	6.74	16.12%	14.40%	48.54%	6.64%
SLRC	74 Outperform	$824.32M	8.61	9.67%	10.85%	14.33%	25.35%
PFLT	71 Outperform	$864.61M	7.06	12.06%	13.40%	93.63%	24.41%
CSWC	71 Outperform	$997.98M	14.22	8.57%	11.71%	4.85%	-37.38%
NMFC	66 Neutral	$1.06B	9.60	8.49%	12.97%	-3.55%	-20.43%
BCSF	66 Neutral	$964.70M	8.07	10.49%	11.25%	12.24%	-3.21%
Sector *	64 Neutral	$13.46B	9.44	9.34%	4.72%	16.14%	-8.80%

Capital Southwest Corporate Events

Capital Southwest Announces New Leadership Team Transition

On February 17, 2025, Capital Southwest Corporation announced significant leadership changes, with Michael Sarner succeeding Bowen S. Diehl as President and CEO, and Chris Rehberger and Tabitha Geiger being promoted to Chief Financial Officer and Chief Compliance Officer, respectively. These transitions are part of the company’s strategic succession planning, aiming for a smooth transition and continued growth under the new leadership, with former CEO Diehl remaining as an advisor.

Capital Southwest Reports Strong Q3 2024 Financials

Capital Southwest Corporation announced its financial results for the third fiscal quarter ended December 31, 2024, reporting a pre-tax net investment income of $0.64 per share. The company declared an increase in total dividends to $0.64 per share for the quarter ending March 31, 2025, and successfully raised $230 million of unsecured convertible notes due 2029. Capital Southwest experienced significant investment activity, with $317.5 million in new commitments, while also receiving prepayments on two debt investments totaling $26.7 million. The company maintained its net asset value at $16.59 per share and received approval to apply for a second SBIC license, potentially providing access to an additional $175 million in debt capital.

Capital Southwest Announces 2024 Dividend Tax Treatment

On January 31, 2025, Capital Southwest Corporation announced the U.S. federal income tax treatment of its 2024 dividends, with the total amount of $2.53 per share classified entirely as ordinary income. The company also detailed the tax implications for non-U.S. shareholders, who are exempt from U.S. withholding tax on interest-related dividends and short-term capital gains, which constituted approximately 92.89% of their total 2024 dividends.