Critical Survey: Fortress Investment Group (FIG) vs. State Street (STT)

Fortress Investment Group (NYSE: FIG) and State Street (NYSE:STT) are both financials 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.

Volatility and Risk

Fortress Investment Group has a beta of 1.89, suggesting that its stock price is 89% more volatile than the S&P 500. Comparatively, State Street has a beta of 1.31, suggesting that its stock price is 31% more volatile than the S&P 500.

Institutional and Insider Ownership

40.0% of Fortress Investment Group shares are held by institutional investors. Comparatively, 88.5% of State Street shares are held by institutional investors. 45.2% of Fortress Investment Group shares are held by insiders. Comparatively, 0.7% of State Street 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.

Analyst Recommendations

This is a breakdown of current ratings and price targets for Fortress Investment Group and State Street, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Fortress Investment Group 0 1 0 0 2.00
State Street 1 6 6 1 2.50

State Street has a consensus price target of $106.36, suggesting a potential upside of 4.50%. Given State Street’s stronger consensus rating and higher possible upside, analysts clearly believe State Street is more favorable than Fortress Investment Group.

Dividends

Fortress Investment Group pays an annual dividend of $0.18 per share and has a dividend yield of 2.3%. State Street pays an annual dividend of $1.68 per share and has a dividend yield of 1.7%. Fortress Investment Group pays out 26.1% of its earnings in the form of a dividend. State Street pays out 32.1% 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. Fortress Investment Group has raised its dividend for 7 consecutive years and State Street has raised its dividend for 2 consecutive years. Fortress Investment Group is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation & Earnings

This table compares Fortress Investment Group and State Street’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Fortress Investment Group $1.16 billion 2.62 $180.64 million $0.69 11.38
State Street $11.81 billion 3.17 $2.18 billion $5.23 19.46

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

Profitability

This table compares Fortress Investment Group and State Street’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Fortress Investment Group 15.59% 58.82% 24.52%
State Street 17.94% 13.41% 1.07%

Summary

State Street beats Fortress Investment Group on 11 of the 18 factors compared between the two stocks.

Fortress Investment Group Company Profile

Fortress Investment Group LLC (Fortress) is an investment management firm. The Company operates through segments, including private equity funds, permanent capital vehicles, credit hedge funds, credit PE funds, liquid hedge funds and Logan Circle. Its business is to sponsor the formation of, and provide investment management services for, various investment funds, permanent capital vehicles and related managed accounts (the Fortress Funds). Fortress’s sources of income from the Fortress Funds are management fees, incentive income and investment income on its investments in the funds. As of December 31, 2016, the Company’s private equity business manages approximately $13.5 billion of assets under management (AUM); credit funds business manages approximately $18.1 billion of AUM; liquid hedge funds business manages over $4.6 billion of AUM, and Logan Circle business manages approximately $33.4 billion of AUM.

State Street Company Profile

State Street Corporation is a financial holding company. The Company operates through two lines of business: Investment Servicing and Investment Management. The Company, through its subsidiary, State Street Bank and Trust Company (State Street Bank), provides a range of financial products and services to institutional investors across the world. Investment servicing line of business performs functions, such as providing institutional investors with clearing, settlement and payment services. The Company operates investment management line of business through State Street Global Advisors (SSGA). SSGA provides a range of investment management, investment research and investment advisory services to corporations, public funds and other investors. Its clients include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers.

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