| Valuation method | Value, $ | Upside, % |
|---|---|---|
| Artificial intelligence (AI) | 285.14 | 1020 |
| Intrinsic value (DCF) | 15.74 | -38 |
| Graham-Dodd Method | n/a | |
| Graham Formula | 84.77 | 233 |
Saratoga Investment Corp. (NYSE: SAZ) is a leading business development company (BDC) specializing in customized financing solutions for middle-market companies in the United States. With a seasoned team boasting over 200 years of combined investment experience and a track record of deploying more than $4 billion in capital, Saratoga provides flexible debt and equity financing to support growth, acquisitions, and recapitalizations. Operating in the competitive financial services sector, Saratoga stands out for its deep industry expertise and ability to structure tailored solutions for businesses with annual EBITDA typically between $5 million and $50 million. The company primarily invests in first and second lien loans, mezzanine debt, and equity co-investments, offering investors exposure to the underserved middle-market segment. As a BDC, Saratoga benefits from favorable tax treatment under the Investment Company Act of 1940 while providing shareholders with an attractive dividend yield. The firm's disciplined underwriting approach and active portfolio management position it well in the growing alternative lending market.
Saratoga Investment Corp presents an intriguing opportunity for income-focused investors, offering an 8.50% yield through its structured debt instruments. The company's focus on middle-market lending provides diversification benefits and access to a segment often overlooked by traditional banks. However, investors should weigh the attractive yield against inherent risks including credit risk exposure to smaller businesses, interest rate sensitivity given the floating-rate nature of many BDC loans, and potential economic cycle vulnerability. The firm's experienced management team and $4 billion historical investment track record provide some comfort, but the BDC sector remains highly competitive with margin pressures. The company's 0.06 beta suggests low correlation with broader markets, potentially offering portfolio diversification benefits, though this may also reflect limited growth prospects. With no reported net income but positive operating cash flow, the sustainability of the current dividend payout warrants close monitoring.
Saratoga Investment Corp competes in the crowded BDC space, differentiating itself through its middle-market specialization and flexible capital solutions. The company's competitive advantage stems from its experienced investment team and ability to structure complex transactions for businesses that may not qualify for traditional bank financing. Saratoga's focus on companies with $5-$50 million EBITDA allows it to operate in a niche with less competition from larger alternative lenders and private equity firms. The firm's portfolio construction emphasizes senior secured loans (approximately 85% of investments), providing some downside protection. However, Saratoga faces intense competition from both public BDCs like Ares Capital and private credit funds that have been aggressively expanding into the middle market. The company's smaller scale (market cap ~$385M) may limit its ability to participate in larger deals compared to mega-BDCs, but enhances its agility in smaller transactions. Saratoga's 8.50% coupon positions it competitively in the current rate environment, though rising rates could pressure borrower credit quality. The BDC's conservative leverage ratio (below the regulatory maximum) provides cushion during economic downturns but may limit returns in strong markets. Saratoga's hands-on portfolio management approach and industry specialization in sectors like business services and healthcare help mitigate some competitive pressures.