Federated Investors (NYSE: FII) and Fifth Street Asset Management (NASDAQ:FSAM) are both finance companies, but which is the better business? We will contrast the two companies based on the strength of their analyst recommendations, institutional ownership, earnings, dividends, risk, valuation and profitability.

Profitability

This table compares Federated Investors and Fifth Street Asset Management’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Federated Investors 18.91% 33.93% 18.36%
Fifth Street Asset Management -0.63% -399.09% 11.43%

Earnings & Valuation

This table compares Federated Investors and Fifth Street Asset Management’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Federated Investors $1.13 billion 2.47 $345.66 million $2.08 13.75
Fifth Street Asset Management $71.87 million 0.85 $35.88 million ($0.14) -27.86

Federated Investors has higher revenue and earnings than Fifth Street Asset Management. Fifth Street Asset Management is trading at a lower price-to-earnings ratio than Federated Investors, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Federated Investors has a beta of 1.42, meaning that its share price is 42% more volatile than the S&P 500. Comparatively, Fifth Street Asset Management has a beta of 0.33, meaning that its share price is 67% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Federated Investors and Fifth Street Asset Management, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Federated Investors 2 4 0 0 1.67
Fifth Street Asset Management 0 1 0 0 2.00

Federated Investors currently has a consensus price target of $23.50, suggesting a potential downside of 17.83%. Fifth Street Asset Management has a consensus price target of $4.00, suggesting a potential upside of 2.56%. Given Fifth Street Asset Management’s stronger consensus rating and higher probable upside, analysts plainly believe Fifth Street Asset Management is more favorable than Federated Investors.

Institutional and Insider Ownership

82.9% of Federated Investors shares are held by institutional investors. Comparatively, 8.6% of Fifth Street Asset Management shares are held by institutional investors. 7.1% of Federated Investors shares are held by company insiders. Comparatively, 86.0% of Fifth Street Asset Management shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Dividends

Federated Investors pays an annual dividend of $1.00 per share and has a dividend yield of 3.5%. Fifth Street Asset Management pays an annual dividend of $0.35 per share and has a dividend yield of 9.0%. Federated Investors pays out 48.1% of its earnings in the form of a dividend. Fifth Street Asset Management pays out -250.0% 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. Fifth Street Asset Management is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Federated Investors beats Fifth Street Asset Management on 10 of the 15 factors compared between the two stocks.

About Federated Investors

Federated Investors, Inc. (Federated) is a provider of investment management products and related financial services. Federated operates through investment management business segment. It is engaged in sponsoring, marketing and providing investment-related services to various investment products, including mutual funds and Separate Accounts, which include separately managed accounts, institutional accounts, sub-advised funds and other managed products. It operates in one segment, the investment management business. As of December 31, 2016, Federated provided investment advisory services to 124 sponsored investment companies and other funds (Federated Funds). It markets these funds to banks, brokers and dealers and other financial intermediaries using them to meet the needs of their customers and clients, including retail investors, corporations and retirement plans. The Company offers a range of products and strategies, including money market, equity and fixed-income investments.

About Fifth Street Asset Management

Fifth Street Asset Management Inc. is an alternative asset manager. The Company provides asset management services to its investment funds (the Fifth Street Funds or the funds), which consist of Fifth Street Finance Corp. (FSC) and Fifth Street Senior Floating Rate Corp. (FSFR), both publicly-traded business development companies (together, the BDCs). Its segment provides asset management services to the Fifth Street Funds. The Company conducts all of its operations through its subsidiaries, Fifth Street Management LLC (FSM), Fifth Street CLO Management LLC (CLO Management) and FSCO GP LLC (FSCO GP). The funds, managed by the Company, provide financing solutions to small and mid-sized companies across their capital structures, mainly in connection with investments by private equity sponsors. It provides credit solutions across the capital structure, including one-stop financing, unitranche debt, senior secured debt, mezzanine debt, equity co-investments and venture debt financing.

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