Financial Analysis: State National Companies (SNC) and State Auto Financial (NASDAQ:STFC)

State Auto Financial (NASDAQ: STFC) and State National Companies (NASDAQ:SNC) are both small-cap financials companies, but which is the superior investment? We will compare the two companies based on the strength of their valuation, risk, dividends, analyst recommendations, institutional ownership, profitability and earnings.

Institutional & Insider Ownership

33.1% of State Auto Financial shares are held by institutional investors. Comparatively, 58.6% of State National Companies shares are held by institutional investors. 1.5% of State Auto Financial shares are held by company insiders. Comparatively, 34.8% of State National Companies shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a summary of recent recommendations and price targets for State Auto Financial and State National Companies, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
State Auto Financial 0 1 0 0 2.00
State National Companies 1 2 4 0 2.43

State Auto Financial presently has a consensus price target of $26.00, indicating a potential downside of 10.03%. State National Companies has a consensus price target of $50.80, indicating a potential upside of 141.67%. Given State National Companies’ stronger consensus rating and higher possible upside, analysts plainly believe State National Companies is more favorable than State Auto Financial.

Earnings & Valuation

This table compares State Auto Financial and State National Companies’ top-line 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 0.87 $21.00 million $0.63 45.87
State National Companies $217.07 million 4.08 $49.07 million $1.25 16.82

State National Companies has lower revenue, but higher earnings than State Auto Financial. State National Companies 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.

Profitability

This table compares State Auto Financial and State National Companies’ 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%
State National Companies 23.91% 18.02% 1.72%

Dividends

State Auto Financial pays an annual dividend of $0.40 per share and has a dividend yield of 1.4%. State National Companies pays an annual dividend of $0.24 per share and has a dividend yield of 1.1%. State Auto Financial pays out 63.5% of its earnings in the form of a dividend. State National Companies pays out 19.2% 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.

Summary

State National Companies beats State Auto Financial on 12 of the 15 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 State National Companies

State National Companies, Inc. is a specialty provider of property and casualty insurance. The Company’s segments include Program Services, Lender Services and Corporate. In the Program Services segment, the Company operates an issuing carrier (fronting) business to provide insurance capacity access to the United States property and casualty insurance markets. In the Lender Services segment, the Company specializes in providing collateral protection insurance, which insures automobiles held as collateral for loans made by financial institutions. The Company writes its insurance business through its insurance company subsidiaries, which include State National Insurance Company, Inc. (SNIC), National Specialty Insurance Company (NSIC) and United Specialty Insurance Company (USIC). As of December 31, 2016, SNIC and NSIC were admitted carriers licensed to write property and casualty business in all 50 states and the District of Columbia. USIC is an admitted carrier in Delaware.

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