NewStar Financial (NASDAQ: NEWS) and Federal Agricultural Mortgage Corporation (NYSE:AGM) are both small-cap finance companies, but which is the superior business? We will compare the two businesses based on the strength of their profitabiliy, institutional ownership, earnings, analyst recommendations, risk, dividends and valuation.

Institutional & Insider Ownership

73.7% of NewStar Financial shares are owned by institutional investors. Comparatively, 63.4% of Federal Agricultural Mortgage Corporation shares are owned by institutional investors. 8.1% of NewStar Financial shares are owned by company insiders. Comparatively, 3.8% of Federal Agricultural Mortgage Corporation shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Profitability

This table compares NewStar Financial and Federal Agricultural Mortgage Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
NewStar Financial 8.65% 3.75% 0.59%
Federal Agricultural Mortgage Corporation 24.15% 15.17% 0.40%

Analyst Ratings

This is a summary of current ratings and target prices for NewStar Financial and Federal Agricultural Mortgage Corporation, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
NewStar Financial 0 1 0 0 2.00
Federal Agricultural Mortgage Corporation 0 1 0 0 2.00

NewStar Financial presently has a consensus target price of $11.00, suggesting a potential upside of 1.57%. Federal Agricultural Mortgage Corporation has a consensus target price of $65.00, suggesting a potential downside of 3.47%. Given NewStar Financial’s higher possible upside, equities research analysts plainly believe NewStar Financial is more favorable than Federal Agricultural Mortgage Corporation.

Earnings and Valuation

This table compares NewStar Financial and Federal Agricultural Mortgage Corporation’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
NewStar Financial $72.80 million 6.13 $22.67 million $0.55 19.69
Federal Agricultural Mortgage Corporation $172.28 million 4.14 $71.85 million $6.78 9.93

Federal Agricultural Mortgage Corporation has higher revenue and earnings than NewStar Financial. Federal Agricultural Mortgage Corporation is trading at a lower price-to-earnings ratio than NewStar Financial, indicating that it is currently the more affordable of the two stocks.

Risk & Volatility

NewStar Financial has a beta of 2.03, meaning that its stock price is 103% more volatile than the S&P 500. Comparatively, Federal Agricultural Mortgage Corporation has a beta of 1.16, meaning that its stock price is 16% more volatile than the S&P 500.

Dividends

NewStar Financial pays an annual dividend of $0.08 per share and has a dividend yield of 0.7%. Federal Agricultural Mortgage Corporation pays an annual dividend of $1.44 per share and has a dividend yield of 2.1%. NewStar Financial pays out 14.5% of its earnings in the form of a dividend. Federal Agricultural Mortgage Corporation pays out 21.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Federal Agricultural Mortgage Corporation has raised its dividend for 5 consecutive years. Federal Agricultural Mortgage Corporation is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

NewStar Financial beats Federal Agricultural Mortgage Corporation on 8 of the 15 factors compared between the two stocks.

About NewStar Financial

NewStar Financial, Inc. (NewStar) is a commercial finance company. The Company operates through two segments: Commercial Lending and Asset Management. The Commercial Lending segment represents its direct lending activities, which are focused on providing a range of flexible senior secured debt options to mid-sized companies. The Asset Management segment represents its investment advisory activities, which are focused on providing opportunities for qualified investors to invest in a range of credit funds managed by the Company. The Company’s direct lending activities are focused on meeting the financial needs of companies and private investors in the middle market by offering a range of debt financing options. Through its asset management platforms, NewStar offers a range of investment products employing credit-oriented strategies focused on middle market loans and liquid, tradeable credit.

About Federal Agricultural Mortgage Corporation

Federal Agricultural Mortgage Corporation (Farmer Mac) provides a secondary market for a range of loans made to borrowers in rural America. The Company’s segments include Farm & Ranch, USDA Guarantees, Rural Utilities, Institutional Credit and Corporate. Its secondary market activities are purchasing eligible loans directly from lenders; providing advances against eligible loans by purchasing obligations secured by those loans; securitizing assets and guaranteeing the payment of principal and interest on the resulting securities that represent interests in, or obligations secured by, pools of eligible loans; and issuing long-term standby purchase commitments (LTSPCs) for eligible loans. The loans eligible for the secondary market provided by Farmer Mac include mortgage loans secured by first liens on agricultural real estate, including part-time farms and rural housing (comprising the assets eligible for the Farm & Ranch line of business).

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