Comparing Heritage Financial (HFWA) & First Business Financial Services (FBIZ)

Heritage Financial (NASDAQ: HFWA) and First Business Financial Services (NASDAQ:FBIZ) are both small-cap finance companies, but which is the superior stock? We will compare the two businesses based on the strength of their valuation, profitability, institutional ownership, analyst recommendations, risk, earnings and dividends.

Profitability

This table compares Heritage Financial and First Business Financial Services’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Heritage Financial 21.16% 8.90% 1.12%
First Business Financial Services 12.87% 7.17% 0.66%

Dividends

Heritage Financial pays an annual dividend of $0.60 per share and has a dividend yield of 1.9%. First Business Financial Services pays an annual dividend of $0.56 per share and has a dividend yield of 2.3%. Heritage Financial pays out 46.9% of its earnings in the form of a dividend. First Business Financial Services pays out 40.9% 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. First Business Financial Services is clearly the better dividend stock, given its higher yield and lower payout ratio.

Earnings and Valuation

This table compares Heritage Financial and First Business Financial Services’ revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Heritage Financial $183.29 million 5.83 $38.79 million $1.28 24.53
First Business Financial Services $92.48 million 2.34 $11.90 million $1.37 18.01

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

Risk & Volatility

Heritage Financial has a beta of 0.5, suggesting that its share price is 50% less volatile than the S&P 500. Comparatively, First Business Financial Services has a beta of 1.01, suggesting that its share price is 1% more volatile than the S&P 500.

Insider and Institutional Ownership

68.5% of Heritage Financial shares are held by institutional investors. Comparatively, 58.7% of First Business Financial Services shares are held by institutional investors. 2.7% of Heritage Financial shares are held by insiders. Comparatively, 8.3% of First Business 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.

Analyst Recommendations

This is a summary of recent ratings and recommmendations for Heritage Financial and First Business Financial Services, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Heritage Financial 0 2 3 0 2.60
First Business Financial Services 0 1 0 0 2.00

Heritage Financial currently has a consensus price target of $34.50, indicating a potential upside of 9.87%. First Business Financial Services has a consensus price target of $25.00, indicating a potential upside of 1.30%. Given Heritage Financial’s stronger consensus rating and higher probable upside, research analysts clearly believe Heritage Financial is more favorable than First Business Financial Services.

Summary

Heritage Financial beats First Business Financial Services on 11 of the 16 factors compared between the two stocks.

About Heritage Financial

Heritage Financial Corporation is a bank holding company. The Company is engaged in the business of planning, directing and coordinating the business activities of its bank subsidiary, Heritage Bank (the Bank). The Bank’s lending activities focus on commercial business lending. The Bank also originates consumer loans, real estate construction and land development loans, and one- to four-family residential loans. The Bank’s investment securities available for sale include the United States treasury and the United States Government-sponsored agencies; municipal securities; mortgage-backed securities and collateralized mortgage obligations, which include residential and commercial; collateralized loan obligations; corporate obligations, and other securities. The Bank’s primary sources of funds are deposits and loan repayments. Borrowings are used on a short-term basis to compensate for reductions in other sources of funds, such as deposit inflows.

About First Business Financial Services

First Business Financial Services, Inc. (FBFS) is a bank holding company. The Company engages in the commercial banking business through its bank subsidiaries, which include First Business Bank (FBB), First Business Bank-Milwaukee (FBB-Milwaukee) and Alterra Bank (Alterra) (FBB and FBB-Milwaukee and, together with FBB, the Banks). The operations of FBFS are conducted through the Banks and certain subsidiaries of FBB. The Banks operate as business banks focusing on delivering a line of commercial banking products, including commercial loans and commercial real estate loans, and services to meet the needs of small- and medium-sized businesses, business owners, executives, professionals and high net worth individuals. Its business lines include commercial lending, asset-based financing, equipment financing, small business administration (SBA) lending, treasury management services, and trust and investment services. Its investments include short-term investments and securities.

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