State Auto Financial (NASDAQ: STFC) and Alleghany (NYSE:Y) are both finance companies, but which is the better investment? We will compare the two businesses based on the strength of their risk, profitability, dividends, analyst recommendations, earnings, institutional ownership and valuation.

Profitability

This table compares State Auto Financial and Alleghany’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
State Auto Financial 1.94% -1.53% -0.46%
Alleghany 0.10% -0.14% -0.05%

Dividends

State Auto Financial pays an annual dividend of $0.40 per share and has a dividend yield of 1.4%. Alleghany does not pay a dividend. State Auto Financial pays out 61.5% of its earnings in the form of a dividend.

Analyst Ratings

This is a summary of current ratings and target prices for State Auto Financial and Alleghany, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
State Auto Financial 0 1 0 0 2.00
Alleghany 0 1 1 0 2.50

State Auto Financial presently has a consensus price target of $26.00, indicating a potential downside of 9.44%. Alleghany has a consensus price target of $625.00, indicating a potential upside of 6.85%. Given Alleghany’s stronger consensus rating and higher probable upside, analysts plainly believe Alleghany is more favorable than State Auto Financial.

Insider and Institutional Ownership

33.1% of State Auto Financial shares are owned by institutional investors. Comparatively, 82.2% of Alleghany shares are owned by institutional investors. 1.5% of State Auto Financial shares are owned by company insiders. Comparatively, 4.0% of Alleghany shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Earnings and Valuation

This table compares State Auto Financial and Alleghany’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
State Auto Financial $1.41 billion 0.86 $21.00 million $0.65 44.17
Alleghany $6.13 billion 1.47 $456.92 million ($0.13) -4,499.38

Alleghany has higher revenue and earnings than State Auto Financial. Alleghany is trading at a lower price-to-earnings ratio than State Auto Financial, indicating that it is currently the more affordable of the two stocks.

Risk & Volatility

State Auto Financial has a beta of 0.85, indicating that its share price is 15% less volatile than the S&P 500. Comparatively, Alleghany has a beta of 0.96, indicating that its share price is 4% less volatile than the S&P 500.

Summary

Alleghany beats State Auto Financial on 12 of the 16 factors compared between the two stocks.

About State Auto Financial

State Auto Financial Corporation is a property and casualty insurance holding company. The Company is engaged in writing personal, business and specialty insurance. Its segments include Personal Insurance Segment, Commercial Insurance Segment and Specialty Insurance Segment. Its Personal Insurance Segment include personal auto, homeowners and other personal; Commercial Insurance Segment include commercial auto, small commercial package, middle market commercial, workers’ compensation and other commercial, and Specialty Insurance Segment include Excess & Surplus (E&S) property, E&S casualty and programs. State Auto Financial’s subsidiaries include State Auto Property & Casualty Insurance Company (State Auto P&C), Milbank Insurance Company (Milbank) and State Auto Insurance Company of Ohio (SA Ohio), each of which is a property and casualty insurance company, and Stateco Financial Services, Inc., (Stateco), which provides investment management services to affiliated insurance companies.

About Alleghany

Alleghany Corporation is an insurance holding company. The Company, through its subsidiary Alleghany Insurance Holdings LLC (AIHL) and its subsidiaries, is engaged in the property and casualty insurance business. AIHL’s insurance operations are conducted by its subsidiaries RSUI Group, Inc. (RSUI), CapSpecialty, Inc. (CapSpecialty) and Pacific Compensation Corporation (PacificComp). Its segments include reinsurance and insurance. Its reinsurance segment consists of property and casualty reinsurance operations conducted by Transatlantic Holdings, Inc. reinsurance operating subsidiaries. Its insurance segment consists of property and casualty insurance operations conducted by AIHL through its insurance operating subsidiaries RSUI, CapSpecialty and PacificComp. AIHL Re LLC, which is a captive reinsurance company, provides reinsurance to its insurance operating subsidiaries and affiliates.

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