CSWC - Capital Southwest Q4: Quality BDC But Valuation Is Too Rich Here

2024-05-16 17:00:00 ET

Summary

• Capital Southwest has seen strong performance, but its premium is too high at a P/NAV ratio of 1.57x and 1.61x its book value.
• The BDC reported strong quarterly earnings and continued portfolio growth during Q4, but is likely due for a pullback in the next few months.
• A pullback in price may be expected in the next 4-6 months due to potential rate cuts and decreased specials and supplemental dividends.
• CSWC has outperformed its peers Ares Capital, Blue Owl Capital Corp, and Blackstone Secured Lending, and Goldman Sachs BDC, up nearly 50% in the past year.
• When interest rates declined from 2007-2009, CSWC's share price declined more than 50%.

Introduction

Capital Southwest ( CSWC ) has been the top performer in my dividend portfolio currently, up more than 50% in the past year. I've been a fan and shareholder of this BDC for quite some time, but with the recent run up in share price, I believe CSWC's premium is too rich at current levels....

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