NMFC

We rate New Mountain Finance Corp (NMFC) as Avoid with a composite score of 37.4/100 at a current price of $8.11. The stock falls in the bottom quintile of our universe across key quantitative factors, and the multi-factor weakness suggests a high probability of continued underperformance.

The rating is primarily driven by strength in stability (46th percentile) and value (44th percentile), which together account for the majority of the composite score. Offsetting weakness in quality (31th percentile) and investment (31th percentile) tempers our overall conviction. We assign a No Moat rating (15/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

New Mountain Finance Corp holds a mid-tier position (#28 of 38) within the Financial sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 37.4/100 places it at rank #3849 in our full 7,333-stock universe. At $1.0B in market capitalization, New Mountain Finance Corp is a small-cap player in the Financial space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue contraction of -12% combined with momentum at the 34th percentile paints a cautious picture of the near-term business outlook. The market appears to be pricing in continued challenges, and a catalyst for reversal is not clearly visible from current data.

The margin cascade tells an important story: gross margins of 0% (-100.0pp vs sector) narrow to operating margins of 0% (-59.1pp vs sector) and net margins of 48.6%, yielding a gross-to-net conversion rate of N/A%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $8.11, New Mountain Finance Corp is trading near fair value based on current fundamentals. Our value factor score of 44/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 12.4x (a 26% premium to the sector median of 9.8x), EV/EBITDA of 18.8x (at a premium), P/B of 0.7x, P/S of 6.1x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Medium uncertainty rating to New Mountain Finance Corp. The stock presents a balanced risk profile: significant leverage (140% debt-to-equity) and weak quality scores (31th percentile). While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: significant leverage (140% debt-to-equity); weak quality scores (31th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 46th percentile and quality factor at the 31th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: a 13.38% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate New Mountain Finance Corp's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 5.4%, and the balance sheet is managed within acceptable parameters (D/E: 140%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; New Mountain Finance Corp falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 13.38% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, New Mountain Finance Corp receives a Avoid rating with a composite score of 37.4/100 (rank #3849 of 7,333). Our quantitative framework assigns a No Moat (15/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 37/100.

Our analysis does not support a constructive view on New Mountain Finance Corp at this time. The combination of limited competitive advantages, medium uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.