Assured Guaranty (NYSE: AGO) and Erie Indemnity (NASDAQ:ERIE) are both mid-cap finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their earnings, valuation, profitability, institutional ownership, analyst recommendations, risk and dividends.

Profitability

This table compares Assured Guaranty and Erie Indemnity’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Assured Guaranty 61.25% 16.00% 7.30%
Erie Indemnity 12.73% 25.11% 13.76%

Insider and Institutional Ownership

96.7% of Assured Guaranty shares are owned by institutional investors. Comparatively, 31.0% of Erie Indemnity shares are owned by institutional investors. 2.6% of Assured Guaranty shares are owned by company insiders. Comparatively, 46.8% of Erie Indemnity shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for Assured Guaranty and Erie Indemnity, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Assured Guaranty 0 1 2 0 2.67
Erie Indemnity 0 0 0 0 N/A

Assured Guaranty presently has a consensus target price of $47.00, indicating a potential upside of 24.08%. Given Assured Guaranty’s higher probable upside, equities research analysts plainly believe Assured Guaranty is more favorable than Erie Indemnity.

Dividends

Assured Guaranty pays an annual dividend of $0.57 per share and has a dividend yield of 1.5%. Erie Indemnity pays an annual dividend of $3.13 per share and has a dividend yield of 2.5%. Assured Guaranty pays out 6.5% of its earnings in the form of a dividend. Erie Indemnity pays out 78.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Assured Guaranty has raised its dividend for 5 consecutive years and Erie Indemnity has raised its dividend for 21 consecutive years. Erie Indemnity is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation & Earnings

This table compares Assured Guaranty and Erie Indemnity’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Assured Guaranty $1.54 billion 2.93 $1.05 billion $8.82 4.29
Erie Indemnity $1.65 billion 3.92 $303.02 million $3.99 31.04

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

Volatility and Risk

Assured Guaranty has a beta of 1.65, indicating that its stock price is 65% more volatile than the S&P 500. Comparatively, Erie Indemnity has a beta of 0.47, indicating that its stock price is 53% less volatile than the S&P 500.

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.

Erie Indemnity Company Profile

Erie Indemnity Company is a management company. The Company serves as the attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange (Exchange). The Exchange is a reciprocal insurer that writes property and casualty insurance. The Company’s function is to perform certain services for the Exchange relating to the sales, underwriting and issuance of policies on behalf of the Exchange. The sales related services the Company provides include agent compensation, and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written, as well as additional commissions and bonuses to agents. The underwriting services the Company provides include underwriting and policy processing expenses. It provides information technology services that supports various functions. The remaining services the Company provides include customer service and administrative costs.

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