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Capital Southwest Corp. (CSWC)
NASDAQ:CSWC
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Capital Southwest
(NASDAQ:CSWC)
68Neutral
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
Base Rates and Yields
Lower base rates are putting downward pressure on portfolio yields, which is a challenge for CSWC.
Market Competition
Competition across the industry remains fierce, putting pressure on spreads in the direct lending market.
Capital Southwest (CSWC) vs. S&P 500 (SPY)
Market Cap
$1.04B
Dividend Yield11.26%
Average Volume (3M)671.25K
Price to Earnings (P/E)14.8
Beta (1Y)0.46
Revenue Growth4.85%
EPS Growth-37.38%
CountryUS
Employees27
SectorFinancial
Sector Strength87
IndustryAsset Management
Share Statistics
EPS (TTM)1.39
Shares Outstanding50,581,840
10 Day Avg. Volume533,559
30 Day Avg. Volume671,253
Financial Highlights & Ratios
PEG RatioN/A
Price to Book (P/B)N/A
Price to Sales (P/S)0.00
Price to Cash Flow (P/CF)0.00
P/FCF Ratio0.00
Enterprise Value/Market Cap2.00
Enterprise Value/RevenueN/A
Enterprise Value/Gross Profit18.99
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$20.50Price Target Upside-0.05% Downside
Rating ConsensusHold
Number of Analyst Covering1
Capital Southwest Business Overview & Revenue Model
Company DescriptionCapital Southwest Corporation (CSWC) is a Dallas, Texas-based business development company specializing in providing customized financing solutions to middle-market companies across various sectors. The company primarily offers debt and equity financing to support acquisitions, growth initiatives, and recapitalizations, enabling businesses to achieve their strategic objectives.
How the Company Makes MoneyCapital 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 shows strong revenue growth and profitability with impressive gross and net profit margins. However, cash flow challenges and moderate leverage pose potential risks. Strategic cash management and cost control could enhance financial stability.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.65
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 | ||||
| Mar 2024 | Mar 2023 | Mar 2022 | Mar 2021 | Mar 2020 |
|---|---|---|---|---|
| Income Statement | Total Revenue | |||
| 109.06M | 61.45M | 83.00M | 72.58M | 62.04M | Gross Profit |
| 109.06M | 58.70M | 80.77M | 70.61M | -236.00K | EBIT |
| 84.60M | 68.94M | 66.76M | 55.56M | -16.14M | EBITDA |
| 158.34M | 71.69M | 65.46M | 54.02M | -1.36M | Net Income Common Stockholders |
| 83.39M | 33.09M | 42.81M | 50.88M | -22.35M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | |||
| 32.27M | 21.59M | 11.43M | 31.61M | 13.74M | Total Assets |
| 1.56B | 1.26B | 973.96M | 735.58M | 584.96M | Total Debt |
| 774.05M | 637.64M | 528.59M | 381.30M | 303.30M | Net Debt |
| 741.78M | 616.06M | 517.16M | 349.69M | 289.55M | Total Liabilities |
| 801.08M | 667.28M | 553.09M | 381.30M | 303.30M | Stockholders Equity |
| 755.68M | 590.41M | 420.87M | 336.25M | 272.22M |
| Cash Flow | Free Cash Flow | |||
| -188.51M | -227.38M | -184.67M | -68.25M | -47.95M | Operating Cash Flow |
| -188.50M | -227.10M | -182.68M | -68.25M | -47.95M | Investing Cash Flow |
| -13.00K | -281.00K | -2.00M | -103.92M | -72.85M | Financing Cash Flow |
| 199.20M | 237.53M | 164.49M | 86.12M | 51.77M |
Capital Southwest Technical Analysis
Negative
20.51
Price Trends
21.16
Negative
21.38
Negative
22.19
Negative
Market Momentum
-0.21
Negative
51.45
Neutral
83.54
Negative
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 20.51 is above the 20-day moving average (MA) of 19.65, below the 50-day MA of 21.16, and below the 200-day MA of 22.19, indicating a neutral trend. The MACD of -0.21 indicates Negative momentum. The RSI at 51.45 is Neutral, neither overbought nor oversold. The STOCH value of 83.54 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for CSWC.
Capital Southwest Risk Analysis
Capital Southwest disclosed 60 risk factors in its most recent earnings report. Capital Southwest reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Capital Southwest Peers Comparison
Overall Rating
UnderperformOutperform
Sector (64)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
75 Outperform | $900.37M | 6.82 | 16.12% | 14.24% | 48.54% | 6.64% | |
71 Outperform | $853.78M | 8.92 | 9.67% | 10.48% | 14.33% | 25.35% | |
70 Outperform | $894.51M | 7.30 | 12.06% | 12.09% | 93.63% | 24.41% | |
68 Neutral | $1.04B | 14.79 | 8.57% | 11.26% | 4.85% | -37.38% | |
66 Neutral | $1.00B | 8.34 | 10.49% | 10.89% | 12.24% | -3.21% | |
65 Neutral | $1.08B | 9.69 | 8.49% | 12.84% | -3.55% | -20.43% | |
64 Neutral | $12.61B | 9.78 | 8.01% | 16985.69% | 12.73% | -4.58% |
* Financial Sector Average
Performance Comparison
CSWC
Capital Southwest
20.51
-3.30
-13.86%
NMFC
New Mountain Finance
9.97
-1.36
-12.00%
PFLT
Pennantpark $
10.17
-0.13
-1.26%
SLRC
SLR Investment Corp.
15.65
1.57
11.15%
BCSF
Bain Capital Specialty Finance
15.42
0.32
2.12%
TRIN
Trinity Capital
14.33
1.46
11.34%
Capital Southwest Earnings Call Summary
Earnings Call Date:Feb 04, 2025
(Q3-2025)
| % Change Since: -5.13%|
Next Earnings Date:May 14, 2025
Earnings Call Sentiment Positive
The earnings call reflected a strong performance with solid dividend coverage, robust portfolio activity, and successful issuance of convertible notes. However, challenges such as non-accrual loans and competitive pressures were noted. The sentiment leans positive due to the outweighing highlights.Q3-2025 Updates
Positive Updates
Strong Dividend Coverage and Growth
Pre-tax net investment income of $0.64 per share fully covered both the regular and supplemental dividends. Dividend sustainability and strong credit performance were emphasized, with a 29x increase in the regular dividend since the launch of the credit strategy.
Robust Portfolio Activity
Total capital commitments during the quarter reached $317.5 million, with 41% being follow-on financings in performing companies. The portfolio grew to $1.5 billion, a 31% increase year-over-year.
Successful Convertible Notes Issuance
Issued $230 million in convertible notes with a 5.125% coupon, using proceeds to redeem $140 million January 2026 notes. This resulted in significant interest expense savings.
SBA License Progress
Received a green light letter from SBA to submit the final application for a second SBIC license, indicating continued participation in the SBA program.
Portfolio Health and Performance
95% of the portfolio is rated in the top two categories, with cash flow coverage of debt service obligations at a healthy 3.5x. The portfolio's weighted average yield was 12.1%.
Negative Updates
Non-Accrual Challenges
Loans on non-accrual represented 2.7% of the investment portfolio at fair value. Some restructurings occurred, contributing to realized losses.
Competitive Market Pressures
The lower middle market remains competitive, with tight loan pricing, resulting in potential spread compression and refinancing risks.
Tariff and Policy Concerns
Approximately 10% of the portfolio could see impacts from tariffs and changing policies, with ongoing assessments needed.
Company Guidance
During the Capital Southwest Third Quarter Fiscal Year 2025 earnings call, the company provided detailed guidance on its financial and operational performance. Key metrics included a pre-tax net investment income of $0.64 per share, which covered both the regular dividend of $0.58 per share and a supplemental dividend of $0.05 per share. The company announced an increase in the supplemental dividend to $0.06 per share for the March quarter, bringing the total dividend to $0.64 per share. Portfolio activity was robust, with $317.5 million in new commitments to nine new and 20 existing portfolio companies, and add-on financings comprised 41% of total capital commitments. The company issued $230 million in convertible notes with a 5.125% coupon, used to redeem $140 million of January 2026 notes and reduce the senior secured revolving credit facility debt. The portfolio's weighted average yield was 12.1%, and 98% of the credit portfolio was first lien senior secured. Additionally, the company announced expectations to receive final approval for a second SBIC license soon and raised approximately $54 million in equity.Capital Southwest Corporate Events
Dividends
Capital Southwest Announces Regular and Supplemental Dividends
Positive
Apr 28, 2025
On April 28, 2025, Capital Southwest Corporation announced a regular dividend of $0.58 per share and a supplemental dividend of $0.06 per share for the quarter ending June 30, 2025. The dividends will be payable on June 30, 2025, with an ex-dividend date of June 13, 2025. This announcement reflects the company’s ongoing commitment to providing returns to its shareholders, supported by its dividend reinvestment plan, which allows registered stockholders to reinvest dividends into additional shares.
Spark’s Take on CSWC Stock
According to Spark, TipRanks’ AI Analyst, CSWC is a Neutral.
Capital Southwest’s overall score is driven by strong financial performance and attractive valuation, but weighed down by technical weakness and cash flow challenges. The positive sentiment from the earnings call, including dividend coverage and portfolio growth, supports investor confidence despite competitive and non-accrual challenges.
To see Spark’s full report on CSWC stock, click here.
Executive/Board Changes
Capital Southwest Announces New Leadership Team Transition
Neutral
Feb 18, 2025
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.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.