American Homes 4 Rent (NYSE: AMH) and AvalonBay Communities (NYSE:AVB) are both mid-cap finance companies, but which is the better business? We will contrast the two businesses based on the strength of their earnings, profitability, analyst recommendations, valuation, risk, dividends and institutional ownership.

Volatility & Risk

American Homes 4 Rent has a beta of 0.7, meaning that its share price is 30% less volatile than the S&P 500. Comparatively, AvalonBay Communities has a beta of 0.34, meaning that its share price is 66% less volatile than the S&P 500.

Profitability

This table compares American Homes 4 Rent and AvalonBay Communities’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
American Homes 4 Rent 3.82% 0.70% 0.43%
AvalonBay Communities 31.14% 6.43% 3.69%

Earnings & Valuation

This table compares American Homes 4 Rent and AvalonBay Communities’ top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
American Homes 4 Rent $934.38 million 6.22 $473.25 million ($0.11) -202.91
AvalonBay Communities $2.05 billion 12.56 $1.30 billion $7.27 25.71

AvalonBay Communities has higher revenue and earnings than American Homes 4 Rent. American Homes 4 Rent is trading at a lower price-to-earnings ratio than AvalonBay Communities, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a breakdown of recent ratings and recommmendations for American Homes 4 Rent and AvalonBay Communities, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
American Homes 4 Rent 0 3 4 0 2.57
AvalonBay Communities 1 7 6 0 2.36

American Homes 4 Rent currently has a consensus target price of $25.00, indicating a potential upside of 12.01%. AvalonBay Communities has a consensus target price of $195.45, indicating a potential upside of 4.57%. Given American Homes 4 Rent’s stronger consensus rating and higher probable upside, analysts clearly believe American Homes 4 Rent is more favorable than AvalonBay Communities.

Institutional & Insider Ownership

93.7% of American Homes 4 Rent shares are held by institutional investors. Comparatively, 97.5% of AvalonBay Communities shares are held by institutional investors. 27.8% of American Homes 4 Rent shares are held by company insiders. Comparatively, 0.5% of AvalonBay Communities shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Dividends

American Homes 4 Rent pays an annual dividend of $0.20 per share and has a dividend yield of 0.9%. AvalonBay Communities pays an annual dividend of $5.68 per share and has a dividend yield of 3.0%. American Homes 4 Rent pays out -181.8% of its earnings in the form of a dividend. AvalonBay Communities pays out 78.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. American Homes 4 Rent has increased its dividend for 5 consecutive years.

Summary

AvalonBay Communities beats American Homes 4 Rent on 10 of the 16 factors compared between the two stocks.

About American Homes 4 Rent

American Homes 4 Rent is an internally managed real estate investment trust (REIT) focused on acquiring, renovating, leasing and operating single-family homes as rental properties. The Company’s primary objective is to generate attractive risk-adjusted returns for its shareholders through dividends and capital appreciation by acquiring, renovating, leasing and operating single-family homes as rental properties. As of December 31, 2016, it owned 48,422 single-family properties in 22 states, including 1,119 properties held for sale, and had an additional 47 properties in escrow that it intended to acquire. Its integrated operating platform offers property management, acquisitions, construction, marketing, leasing, financial and administrative functions. The Company may seek to invest in condominium units, townhouses and real estate-related debt investments. The Company is externally managed and advised by American Homes 4 Rent Advisor, LLC (the Advisor).

About AvalonBay Communities

AvalonBay Communities, Inc. is a real estate investment trust (REIT). The Company is focused on the development, redevelopment, acquisition, ownership and operation of multifamily communities primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California. Its segments include Established Communities, Other Stabilized Communities and Development/Redevelopment Communities. As of January 31, 2017, it owned or held a direct or indirect ownership interest in 259 operating apartment communities containing 75,038 apartment homes in 10 states and the District of Columbia; 27 communities under development, and rights to develop an additional 25 communities. It operates its apartment communities under three core brands: Avalon, AVA and Eaves by Avalon. Its real estate investments consist of operating apartment communities, communities in various stages of development (Development Communities) and Development Rights.

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