Arch Capital Group (NASDAQ: ACGL) and Assured Guaranty (NYSE:AGO) are both mid-cap finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their profitability, risk, institutional ownership, earnings, dividends, analyst recommendations and valuation.

Institutional and Insider Ownership

76.9% of Arch Capital Group shares are held by institutional investors. Comparatively, 96.8% of Assured Guaranty shares are held by institutional investors. 6.6% of Arch Capital Group shares are held by insiders. Comparatively, 2.6% of Assured Guaranty shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Arch Capital Group and Assured Guaranty’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Arch Capital Group 15.65% 8.76% 2.32%
Assured Guaranty 61.25% 16.00% 7.30%

Analyst Ratings

This is a summary of current recommendations and price targets for Arch Capital Group and Assured Guaranty, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Arch Capital Group 0 6 2 0 2.25
Assured Guaranty 0 1 2 0 2.67

Arch Capital Group currently has a consensus target price of $94.83, suggesting a potential upside of 0.54%. Assured Guaranty has a consensus target price of $47.00, suggesting a potential upside of 15.42%. Given Assured Guaranty’s stronger consensus rating and higher possible upside, analysts clearly believe Assured Guaranty is more favorable than Arch Capital Group.

Volatility and Risk

Arch Capital Group has a beta of 0.67, meaning that its share price is 33% less volatile than the S&P 500. Comparatively, Assured Guaranty has a beta of 1.67, meaning that its share price is 67% more volatile than the S&P 500.

Valuation and Earnings

This table compares Arch Capital Group and Assured Guaranty’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Arch Capital Group $4.91 billion 2.58 $1.14 billion $5.47 17.24
Assured Guaranty $1.54 billion 3.15 $1.05 billion $8.82 4.62

Arch Capital Group has higher revenue and earnings than Assured Guaranty. Assured Guaranty is trading at a lower price-to-earnings ratio than Arch Capital Group, indicating that it is currently the more affordable of the two stocks.

Dividends

Assured Guaranty pays an annual dividend of $0.57 per share and has a dividend yield of 1.4%. Arch Capital Group does not pay a dividend. Assured Guaranty pays out 6.5% of its earnings in the form of a dividend. Arch Capital Group has increased its dividend for 5 consecutive years.

Summary

Assured Guaranty beats Arch Capital Group on 10 of the 16 factors compared between the two stocks.

Arch Capital Group Company Profile

Arch Capital Group Ltd. provides insurance, reinsurance and mortgage insurance. The Company provides a range of property, casualty and mortgage insurance and reinsurance lines. The Company operates in five segments: insurance, reinsurance, mortgage, other and corporate. The insurance segment’s product lines include construction and national accounts; excess and surplus casualty; lenders products; professional lines; programs; property, energy, marine and aviation; travel, accident and health, and other. The reinsurance segment’s product lines include casualty; marine and aviation; other specialty; property catastrophe; property excluding property catastrophe, and other. The mortgage segment includes the results of Arch Mortgage Insurance Company and Arch Mortgage Insurance Designated Activity Company, which are providers of mortgage insurance products and services to the United States and European markets. The other segment includes the results of Watford Holdings Ltd.

Assured Guaranty Company Profile

Assured Guaranty Ltd. is a holding company. The Company, through its subsidiaries, provides credit protection products to the United States and international public finance, including infrastructure, and structured finance markets. It applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments. It markets its financial guaranty insurance directly to issuers and underwriters of public finance and structured finance securities, as well as to investors in such obligations. It guarantees obligations issued principally in the United States and the United Kingdom and also guarantees obligations issued in other countries and regions, including Australia and Western Europe. It also provides other forms of insurance that are in line with its risk profile and benefit from its underwriting experience.

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