PennyMac Financial Services (NYSE: PFSI) and Walker & Dunlop (NYSE:WD) are both small-cap finance companies, but which is the better business? We will contrast the two businesses based on the strength of their valuation, analyst recommendations, earnings, profitability, institutional ownership, dividends and risk.

Institutional & Insider Ownership

88.0% of PennyMac Financial Services shares are owned by institutional investors. Comparatively, 76.7% of Walker & Dunlop shares are owned by institutional investors. 45.6% of PennyMac Financial Services shares are owned by insiders. Comparatively, 11.7% of Walker & Dunlop shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Volatility and Risk

PennyMac Financial Services has a beta of 0.63, suggesting that its share price is 37% less volatile than the S&P 500. Comparatively, Walker & Dunlop has a beta of 1.44, suggesting that its share price is 44% more volatile than the S&P 500.

Profitability

This table compares PennyMac Financial Services and Walker & Dunlop’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
PennyMac Financial Services 6.47% 4.11% 1.06%
Walker & Dunlop 21.81% 22.35% 4.65%

Earnings & Valuation

This table compares PennyMac Financial Services and Walker & Dunlop’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
PennyMac Financial Services $931.89 million 0.50 $66.07 million $2.62 7.58
Walker & Dunlop $575.28 million 2.68 $113.89 million $4.62 10.75

Walker & Dunlop has higher revenue, but lower earnings than PennyMac Financial Services. PennyMac Financial Services is trading at a lower price-to-earnings ratio than Walker & Dunlop, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of current recommendations and price targets for PennyMac Financial Services and Walker & Dunlop, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
PennyMac Financial Services 1 1 4 0 2.50
Walker & Dunlop 0 1 1 0 2.50

PennyMac Financial Services presently has a consensus price target of $20.33, indicating a potential upside of 2.43%. Walker & Dunlop has a consensus price target of $52.00, indicating a potential upside of 4.67%. Given Walker & Dunlop’s higher probable upside, analysts clearly believe Walker & Dunlop is more favorable than PennyMac Financial Services.

Summary

Walker & Dunlop beats PennyMac Financial Services on 9 of the 13 factors compared between the two stocks.

About PennyMac Financial Services

PennyMac Financial Services, Inc. (PFSI) is a financial services company. The Company is focused on the production and servicing of the United States residential mortgage loans and the management of investments related to the United States mortgage market. The Company operates through three segments: loan production, loan servicing and investment management. PFSI’s mortgage banking subsidiary, PennyMac Loan Services, LLC (PLS), is a non-bank producer and servicer of mortgage loans in the United States. As of December 31, 2016, PLS serviced loans in all 50 states, the District of Columbia, Guam and the United States Virgin Islands, and originated loans in 49 states and the District of Columbia. PFSI’s investment management subsidiary, PNMAC Capital Management, LLC (PCM), is an investment advisor. PLS is a seller and servicer for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

About Walker & Dunlop

Walker & Dunlop, Inc. is a holding company, which conducts its operations through Walker & Dunlop, LLC. The Company provides commercial real estate financial products and services primarily to developers and owners of multifamily properties. The Company originates, sells and services a range of multifamily and other commercial real estate financing products, including Multifamily Finance, Federal Housing Administration (FHA) Finance, Capital Markets, and Proprietary Capital. It originates and sells loans through the programs of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac, and together with Fannie Mae, the government-sponsored enterprises (GSEs)), the Government National Mortgage Association (Ginnie Mae) and the Federal Housing Administration, a division of the United States Department of Housing and Urban Development (together with Ginnie Mae, HUD).

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