Merchants Bancorp (NASDAQ:MBIN – Get Rating) and Franklin Financial Services (NASDAQ:FRAF – Get Rating) are both small-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their dividends, valuation, profitability, earnings, risk, institutional ownership and analyst recommendations.
Analyst Recommendations
This is a breakdown of current ratings and price targets for Merchants Bancorp and Franklin Financial Services, as reported by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Merchants Bancorp | 0 | 0 | 1 | 1 | 3.50 |
| Franklin Financial Services | 0 | 0 | 0 | 0 | N/A |
Merchants Bancorp presently has a consensus price target of $34.50, suggesting a potential upside of 54.92%. Given Merchants Bancorp’s higher possible upside, research analysts clearly believe Merchants Bancorp is more favorable than Franklin Financial Services.
Profitability
| Net Margins | Return on Equity | Return on Assets | |
| Merchants Bancorp | 31.11% | 24.59% | 1.89% |
| Franklin Financial Services | 20.00% | 13.27% | 0.85% |
Institutional and Insider Ownership
23.1% of Merchants Bancorp shares are held by institutional investors. Comparatively, 20.5% of Franklin Financial Services shares are held by institutional investors. 40.8% of Merchants Bancorp shares are held by insiders. Comparatively, 6.3% of Franklin Financial Services shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.
Valuation and Earnings
This table compares Merchants Bancorp and Franklin Financial Services’ top-line revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Merchants Bancorp | $606.77 million | 1.59 | $219.72 million | $4.52 | 4.93 |
| Franklin Financial Services | $65.41 million | 1.64 | $14.94 million | $3.44 | 7.08 |
Merchants Bancorp has higher revenue and earnings than Franklin Financial Services. Merchants Bancorp is trading at a lower price-to-earnings ratio than Franklin Financial Services, indicating that it is currently the more affordable of the two stocks.
Volatility and Risk
Merchants Bancorp has a beta of 1.12, suggesting that its stock price is 12% more volatile than the S&P 500. Comparatively, Franklin Financial Services has a beta of 0.53, suggesting that its stock price is 47% less volatile than the S&P 500.
Dividends
Merchants Bancorp pays an annual dividend of $0.32 per share and has a dividend yield of 1.4%. Franklin Financial Services pays an annual dividend of $1.28 per share and has a dividend yield of 5.3%. Merchants Bancorp pays out 7.1% of its earnings in the form of a dividend. Franklin Financial Services pays out 37.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Merchants Bancorp has raised its dividend for 6 consecutive years.
Summary
Merchants Bancorp beats Franklin Financial Services on 14 of the 17 factors compared between the two stocks.
About Merchants Bancorp
Merchants Bancorp is a bank holding company, which specializes in multiple lines of business in banking and finance. It operates through the following segments: Multi-Family Mortgage Banking, Mortgage Warehousing, and Banking. The Multi-Family Mortgage Banking segment engages in mortgage banking, specializing in originating and servicing loans for multi-family rental housing and healthcare facility financing, particularly for senior living properties. The Mortgage Warehousing segment funds agency eligible loans for non-depository financial institutions from the date of origination or purchase until the date of sale to an investor. The Banking segment refers to financial products and services to consumers and businesses, including commercial, commercial real estate, mortgage, and other consumer loan products, and letters of credit and various types of deposit products, including checking, savings and time deposit accounts. The company was founded by Michael Petrie and Randall D. Rogers in 1990 and is headquartered in Carmel, IN.
About Franklin Financial Services
Franklin Financial Services Corp. is a bank holding company, which engages in financial services and offers traditional banking. It offers commercial and retail financial services, including the taking of time, savings and demand deposits, the making of commercial, consumer and mortgage loans, and the providing of safe deposit services. The company was founded on June 1, 1983 and is headquartered in Chambersburg, PA.
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