By Anton Ladnyi, CFA · ex-Goldman Sachs · ex-J.P. MorganPublished Updated
FSK — at 0.57x NAV with KKR's $11 tender floor and $150M convertible preferred backstop; $0.42 NII fully covers dividend but 8.1% nonaccruals at cost (up from 5.5% QoQ) and 9.9% single-quarter NAV decline signal active credit deterioration requiring position-level conviction
FSK Price Target & Rating
FSK's grade is Reduce, with elevated downside risk (CVaR -25.6%), and quality metrics (net margin -39%, ROE -9%). FS KKR Capital Corp (FSK) trades at $10.78 with a valuation grade of Reduce: net margins of -38.7%, a DCF-implied intrinsic range of $13–$22 suggesting a +64% margin of safety, beta 0.91 (moderate risk profile).
DCF Valuation Range
Key Takeaways
Valuation: Reduce grade — DCF range $13–$22 implies +64% margin of safety
Risk: CVaR -25.6% (95th percentile, 1-month) indicates moderate tail exposure; beta of 0.91 amplifies broad market moves in both directions
Strengths: -39% net margin, -9% ROE dominate the factor profile
Catalyst: Q2 2026 earnings (expected August 2026) — nonaccruals stabilizing below 8.5% of cost basis would signal credit trough; KKR tender offer completion and buyback execution pace are near-term monitoring events; any realized recovery on existing non-accruals above current marks would support NAV stabilization
Bear catalyst: Nonaccruals at cost exceed 10% in Q2 2026, indicating systemic portfolio deterioration beyond KKR's workout capacity; NAV declines below $16.00, triggering regulatory leverage covenant concerns; KKR does not execute on the buyback program or reduces the committed preferred investment
FSK — Quantitative SnapshotMay 2026
RatingReduce
Price$10.78
Why ReduceModestly above estimated intrinsic value — risk/reward skewed to the downside at current price; watch for a pullback to the Hold boundary
Main riskElevated tail risk — CVaR -25.6% on a one-month horizon
Tail riskCVaR -25.6% over one month at the 95th percentile
DCF range$13–$22 intrinsic range; margin of safety +64%
Best useCore mid-cap Financials holding — not a source of diversified sector exposure
Next watchEarnings delivery consistency and margin trajectory
Quantitative Factor Profile
Value
3.0 / 5
Quality
1.0 / 5
Momentum
3.0 / 5
Volatility
4.0 / 5
Size
2.5 / 5
Key Metrics
FSK Key Metrics — FS KKR Capital Corp 2026
Metric
Value
Current Price
$10.78
Forward P/E
7.0x
P/S Ratio
2.1
Beta
0.91
Net Margin
-38.7%
ROE
-9.3%
Debt/Equity
137.9%
Dividend Yield
0.21%
CVaR (95%, 1M)
-25.6%
Market Cap
$3.0B
Analyst View
Anton Ladnyi, CFA · A.L. Capital AdvisoryUpdated 2026-05-23
Rating Rationale
FSK — at 0.57x NAV with KKR's $11 tender floor and $150M convertible preferred backstop; $0.42 NII fully covers dividend but 8.1% nonaccruals at cost (up from 5.5% QoQ) and 9.9% single-quarter NAV decline signal active credit deterioration requiring position-level conviction
Investment Thesis
↑ Bull Case
KKR's coordinated intervention — $150M fixed-price tender at $11/share, $150M convertible preferred at $18.83 conversion price, $300M buyback authorization, and four-quarter fee waiver — signals the sponsor's commitment to stabilizing FSK and preventing further discount widening
At 0.57x NAV ($10.82 price vs $18.83 NAV), FSK offers one of the steepest discounts in the BDC universe; if credit quality stabilizes and nonaccruals normalize to 4-5%, NAV recovery to $17-18 and re-rating to 0.65-0.70x implies $11-12.50 stock price — 0-15% upside plus 15%+ income
$0.42 NII per share covers the $0.42 quarterly dividend at 100%; annualized yield of 15.5% at current price compensates investors for credit risk, with management guiding ~9% of NAV as the 2026 dividend target ($1.68 annualized on $18.83 NAV)
KKR's $495B AUM credit infrastructure and workout capabilities can renegotiate or restructure problem loans in ways smaller BDCs cannot; the $150M preferred investment aligns KKR's incentives directly with FSK's credit recovery
↓ Bear Case
Nonaccruals at cost surged to 8.1% in Q1 2026 from 5.5% in Q4 2025 — a 260bps increase in a single quarter — indicating active credit deterioration, not a market-driven mark; at 8.1%, FSK's nonaccrual rate is 4x the peer-group average (ARCC 2.1%, OBDC 1.0%)
NAV declined 9.9% in a single quarter (from $20.90 to $18.83) — an unprecedented rate for a large BDC outside of 2008 and COVID; if nonaccruals continue to rise toward 10-12% of cost basis, another 8-10% NAV decline is plausible within 2-3 quarters
KKR tender offer at $11/share is below NAV by 42%; while it establishes a short-term floor, it also signals that KKR's own underwriting of FSK's fair value is far below book — a disconcerting signal from the most informed party
Revenue missed estimates by 8.51% in Q1 2026, and EPS missed by 8.1%; the combination of revenue miss, nonaccrual surge, and NAV collapse resulted in 9 analyst target cuts in a single week, with JPMorgan's target cut to $9.50 — below current price
What Changes the Rating
↑Catalyst:Nonaccruals decline from 8.1% toward 5% over 2 quarters, confirming workout/recovery thesis; KKR exercises conversion rights on the $150M preferred (at $18.83) signaling confidence in NAV recovery; NII recovers above $0.45/share from higher-yielding new originations replacing resolved problem assets
↓Stop / exit:Nonaccruals at cost exceed 10% in Q2 2026, indicating systemic portfolio deterioration beyond KKR's workout capacity; NAV declines below $16.00, triggering regulatory leverage covenant concerns; KKR does not execute on the buyback program or reduces the committed preferred investment
Anton’s personal note
The rating on FSK is driven by a factor profile that is genuinely mixed — there is no clean narrative here, which is itself a signal worth taking seriously. What I watch on this name is earnings consistency — specifically whether delivery against consensus is stable or deteriorating. That is usually where the rating gets confirmed or challenged before the price reflects it. The scenario that changes my read is a genuine valuation reset — not a small pullback, but a re-rating that reflects the actual risk profile. Until that happens, the risk/reward is not there.
Quantitative grade: Hold • CVaR from one-year daily history · historical simulation
DCF Scenario Analysis
Hover each scenario for detail · current price $10.78
▼
Bear Case
$8
-21.2%
Fwd P/E: 5.5x
-15% revenue CAGR · 0.45x NAV exit multiple
◆
Base Case
$12
+11.3%
Fwd P/E: 7.7x
0% revenue CAGR · 0.64x NAV exit multiple
▲
Bull Case
$14
+34.5%
Fwd P/E: 9.3x
+10% revenue CAGR · 0.77x NAV exit multiple
Pairwise Correlation Matrix
6 of 10 peer pairs correlated above 0.60 — diversification benefit within this cluster is structurally limited.
Extended Analysis — Buy, Hold or Sell? Risk Factors. Portfolio Fit.
Is FSK a buy, hold, or sell?
FSK carries a valuation grade of Reduce. Our discounted cash flow model produces an intrinsic range of $13–$22 — implying a +64% margin of safety at the current price of $10.78. The width of the DCF range reflects genuine uncertainty in the terminal growth rate assumption: the correct framework is a probability-weighted distribution over scenarios, not a single point estimate. See the DCF valuation framework for full methodology.
With a 0% beat rate on recent quarters, earnings predictability has been mixed. The most recent quarter missed by a 5.2% earnings surprise. Analyst estimate revisions are trending downward.
What are FSK's key risk factors?
With a beta of 0.91, FSK exhibits a market-neutral risk profile relative to the broad market. The 95th-percentile CVaR of -25.6% on a one-month horizon should inform position sizing directly: at a 10% portfolio weight, this tail event contributes approximately 2.6% of total portfolio loss in the worst 5% of months. Net margins of -38.7% fall below the Financials sector average of 28%, suggesting margin pressure. Leverage is moderate with debt-to-equity at 138%.
The options market shows a put/call ratio of 4.14, reflecting a notably bearish skew in derivative positioning. Insiders have been net sellers to the tune of $8.2M recently. While routine dispositions are common, the magnitude bears watching. Short interest stands at 5.6% of float, a moderate level.
How does FSK fit in a diversified portfolio?
At typical HENRY portfolio weights — 10–20% of the equity allocation — FSK carries a beta of 0.91, meaning it amplifies broad market moves proportionally. The appropriate weight is not a function of conviction alone, but of the full covariance structure across all reduceings. See the Ledoit-Wolf covariance framework for the methodology behind these calculations.
Among closely correlated names, FSK shows the strongest co-movement with ARCC (0.60), OBDC (0.59), BXSL (0.58). Investors seeking diversification should note these correlation dynamics when constructing multi-asset portfolios.
True portfolio risk is a function of the full covariance structure across all reduceings — not individual stock metrics. The Portfolio Health Check quantifies this at the portfolio level: it surfaces hidden concentration, marginal CVaR contributions, and the degree to which your overall allocation deviates from an optimal risk-adjusted mandate. The FSK analysis here is a single node in that larger structure.
For the portfolio construction framework underpinning FSK’s position sizing and conviction rating — including IPS guardrails, Black-Litterman allocation, and CVaR constraints — see: Investment Policy Statement Framework →
Investor FAQ
Is FSK a buy or sell in 2026?
FS KKR Capital Corp (FSK) carries a Reduce quantitative rating from A.L. Capital Advisory, derived from Discounted Cash Flow intrinsic value analysis, five-factor model scoring (Value, Quality, Momentum, Volatility, Size), and CVaR tail risk measurement. At $10.78, the DCF midpoint margin of safety is +64% (intrinsic value range: $13 bear – $22 bull). Composite factor score: 2.7/5. Strongest factor: Volatility (4.0/5). Weakest factor: Quality (1.0/5). Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Portfolio Construction Framework →
What is the average analyst target price for FSK?
Wall Street consensus target for FSK: $11.50 (+6.7% upside from the current price of $10.78). The analyst target range spans $9.50 (most bearish) to $15.00 (most bullish). Consensus recommendation: Hold. Note that analyst price targets typically reflect a 12-month forward horizon and are derived from a blend of DCF, comparable-company, and sum-of-the-parts analysis. A.L. Capital Advisory’s quantitative Reduce rating is produced independently — from DCF intrinsic value, five-factor model scores, and CVaR tail risk — and does not mechanically track Street consensus. When the two diverge, the divergence itself is informative: it can reflect differences in time horizon, valuation methodology, or the degree to which the current price already discounts the consensus case. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Monte Carlo Simulation Framework →
How does FSK score on Value, Quality, Momentum, Volatility, and Size?
FSK five-factor scores (A.L. Capital Advisory, 1–5 scale): Value 3.0/5 (neutral) — measures current price versus DCF intrinsic range and trailing earnings multiples; Quality 1.0/5 (weak) — captures profitability metrics including return on equity, net margin (ROE: -9.3%) and net margin (-38.7%); Momentum 3.0/5 (neutral) — reflects recent price trajectory and earnings surprise consistency; Volatility 4.0/5 (above average) — inverse measure derived from beta, where lower historical volatility earns a higher score; Size 2.5/5 (neutral) — market capitalisation rank (mega-cap $1T+ scores 5/5). Composite: 2.7/5. Factor scores above 4.0 signal a tailwind in that dimension; below 2.0 signals a material headwind. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Black-Litterman Model →
What is FSK's tail risk and CVaR?
The 95th-percentile Conditional Value at Risk (CVaR) for FSK on a one-month horizon is -25.6%. CVaR represents the expected average loss in the worst 5% of monthly outcomes — a more conservative tail risk measure than standard VaR, which only marks the loss threshold. Beta of 0.91 indicates broadly market-level volatility. For reference, a diversified S&P 500 ETF carries a one-month CVaR of roughly -8% to -12% in normal market conditions; individual equity CVaR is higher due to idiosyncratic risk. At the portfolio level, what matters is the marginal CVaR contribution of each holding — not its standalone figure. The A.L. Capital Advisory Portfolio Health Check quantifies each position's marginal tail-risk contribution across your entire holdings. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: CVaR & Tail-Risk Methodology →
What is FSK's intrinsic value and DCF price target?
A.L. Capital Advisory's DCF model produces an intrinsic value range of $13 (bear case) to $22 (bull case) for FS KKR Capital Corp (FSK). At $10.78, the midpoint margin of safety is +64% (positive = discount to intrinsic mid; negative = premium). The bear-to-bull spread reflects genuine sensitivity to the two dominant DCF inputs: the terminal growth rate and WACC. Terminal value typically accounts for 60-80% of total intrinsic value in most equity DCF models, which is why a range is more analytically sound than a point estimate. The central analytical question is not what the DCF outputs as a single number but which growth trajectory the current market price already discounts. All DCF analysis follows CFA Institute standards and is conducted by Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: DCF Valuation Framework →
What would trigger a rating upgrade or downgrade for FSK?
Upgrade trigger: Upgrade to Strong Buy on accelerating earnings momentum, improving factor scores, and a wider margin of safety. Downgrade trigger: Continued earnings misses or deteriorating balance sheet quality reducing the Quality factor score below 2.0/5. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Investment Policy Statement Framework →
Does FSK consistently beat earnings estimates?
FSK has beaten consensus EPS estimates in 0% of tracked quarterly periods — indicating inconsistent delivery. The most recent reported quarter missed consensus by 5.2%. Below-average earnings consistency is a primary headwind to the rating and a key watch item in the quantitative model. Earnings surprise magnitude and direction are incorporated into the Momentum and Quality dimensions of the five-factor scoring model. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: DCF Valuation Framework →
How does FSK contribute to portfolio risk and diversification?
FSK carries a beta of 0.91 (moderate-volatility relative to the broad equity market). A beta above 1.0 means the position amplifies market moves in both directions at a typical portfolio weight. Strongest peer co-movement: ARCC (0.60), OBDC (0.59), BXSL (0.58). Holding FSK alongside these names in the same portfolio increases concentration risk. True portfolio risk is a function of the full covariance structure — a single stock's beta does not reveal its marginal contribution to portfolio tail loss. The A.L. Capital Advisory Portfolio Health Check quantifies concentration risk (Herfindahl-Hirschman Index), pairwise correlations, and marginal CVaR contribution across all your holdings. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Ledoit-Wolf Covariance Framework →
What quantitative methodology does A.L. Capital Advisory use to analyse FSK?
A.L. Capital Advisory analyses FS KKR Capital Corp (FSK) using a four-component quantitative framework grounded in CFA Institute standards. (1) DCF Valuation: projects free cash flows under bear and bull assumptions, discounts at WACC to produce an intrinsic value range with margin-of-safety calculation. (2) Five-Factor Scoring: each equity is scored 1–5 on Value, Quality, Momentum, Volatility, and Size. (3) CVaR Tail Risk: 95th-percentile Conditional Value at Risk from historical simulation of daily returns on a one-month horizon. (4) Earnings Surprise Analysis: quarterly beat rate and magnitude are incorporated into the Momentum and Quality factor scores. The current Reduce rating for FSK is the output of applying this complete framework to current data. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: DCF Valuation Framework → · CVaR & Tail-Risk Methodology →
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This analysis is produced using a systematic quantitative framework applied to market data and does not constitute investment advice. Prose commentary is AI-assisted and generated from structured quantitative inputs. All data and metrics are as of 2026-05-23 and are point-in-time estimates subject to revision without notice. CVaR figures are based on historical simulation and do not guarantee future outcomes. DCF ranges and upgrade/downgrade triggers are forward-looking statements based on current assumptions and may not materialise. Past performance does not guarantee future results. This analysis does not account for individual circumstances, tax position, or investment objectives — consult a qualified financial advisor before making investment decisions. This content is intended for informational purposes only and does not constitute regulated investment advice under MiFID II or FCA guidelines. This content is not intended for US persons or residents of jurisdictions where its distribution would be contrary to local law or regulation. This service is not directed at residents of Finland, Sweden, Norway, Denmark, Iceland, or Poland. The author may hold long or short positions in securities mentioned in this analysis. Nothing on this page represents a solicitation to buy or sell any security. A.L. Capital Advisory is an independent private advisory practice and is not affiliated with FS KKR Capital Corp.
CFA Portfolio Advisory — FSK
Discuss this analysis, position sizing, or your full portfolio mandate with Anton Ladnyi, CFA.
