Reviewing CYS Investments (CYS) and Hatteras Financial (HTS)

Hatteras Financial (NYSE: HTS) and CYS Investments (NYSE:CYS) are both small-cap financials companies, but which is the superior business? We will contrast the two businesses based on the strength of their dividends, earnings, profitability, institutional ownership, analyst recommendations, valuation and risk.

Valuation & Earnings

This table compares Hatteras Financial and CYS Investments’ revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Hatteras Financial N/A N/A N/A ($0.09) -181.00
CYS Investments $294.54 million 4.28 $16.39 million ($0.20) -40.70

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

Analyst Ratings

This is a breakdown of current recommendations and price targets for Hatteras Financial and CYS Investments, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Hatteras Financial 0 0 0 0 N/A
CYS Investments 1 3 0 0 1.75

CYS Investments has a consensus target price of $8.00, indicating a potential downside of 1.72%. Given CYS Investments’ higher possible upside, analysts clearly believe CYS Investments is more favorable than Hatteras Financial.

Profitability

This table compares Hatteras Financial and CYS Investments’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Hatteras Financial N/A -16.93% -1.89%
CYS Investments -2.59% 13.30% 1.37%

Insider & Institutional Ownership

62.4% of CYS Investments shares are owned by institutional investors. 1.0% of CYS Investments shares are owned 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.

Dividends

Hatteras Financial pays an annual dividend of $1.80 per share and has a dividend yield of 11.0%. CYS Investments pays an annual dividend of $1.00 per share and has a dividend yield of 12.3%. Hatteras Financial pays out -2,000.0% of its earnings in the form of a dividend. CYS Investments pays out -500.0% 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.

Summary

CYS Investments beats Hatteras Financial on 7 of the 10 factors compared between the two stocks.

Hatteras Financial Company Profile

Hatteras Financial Corp. is an externally managed mortgage real estate investment trust (REIT) that invests in single-family residential mortgage real estate assets, such as mortgage-backed security (MBS), mortgage servicing right (MSR), residential mortgage loans and other financial assets. MBS are pass-through securities consisting of a pool of mortgage loans. Its primary business is owning and managing agency securities, with a primary focus on adjustable-rate mortgage securities. Its primary investment assets include Agency MBS; other agency issued securities, such as credit-risk transfer bonds; MSR; non-agency securities; residential mortgage loans, and other real estate related assets as permitted by its investment guidelines and REIT requirements. Its business operations consist of the Hatteras Financial Corp., Onslow Bay Financial LLC, First Winston Securities, Inc. and Wind River TRS LLC. It is externally managed and advised by its manager, Atlantic Capital Advisors LLC.

CYS Investments Company Profile

CYS Investments, Inc. is a specialty finance company. The Company’s objective is to provide consistent returns to its investors through a combination of dividends and capital appreciation. It invests in agency residential mortgage-backed security (RMBS) collateralized by fixed rate single-family residential mortgage loans; adjustable-rate mortgages (ARMs), which have coupon rates that reset monthly, or hybrid ARMs, which have a coupon rate that is fixed for an initial period. In addition, it has investments in collateralized mortgage obligations issued by a government agency or government-sponsored entity (GSE) that are collateralized by Agency RMBS. Its investments consist of residential mortgage pass-through securities for which the principal and interest payments are guaranteed by a GSE, such as Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, or by the United States Government agency, such as Government National Mortgage Association.

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