Analyzing First Business Financial Services (NASDAQ:FBIZ) & Heritage Financial (HFWA)

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

Earnings & Valuation

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

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
First Business Financial Services $92.48 million 2.33 $11.90 million $1.35 18.21
Heritage Financial $183.29 million 5.81 $38.79 million $1.28 24.45

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.

Profitability

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

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

Dividends

First Business Financial Services pays an annual dividend of $0.56 per share and has a dividend yield of 2.3%. Heritage Financial pays an annual dividend of $0.60 per share and has a dividend yield of 1.9%. First Business Financial Services pays out 41.5% of its earnings in the form of a dividend. Heritage Financial pays out 46.9% 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.

Institutional & Insider Ownership

59.4% of First Business Financial Services shares are held by institutional investors. Comparatively, 73.4% of Heritage Financial shares are held by institutional investors. 8.3% of First Business Financial Services shares are held by insiders. Comparatively, 2.7% of Heritage Financial shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments 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 price targets for First Business Financial Services and Heritage Financial, as provided by MarketBeat.

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

First Business Financial Services currently has a consensus target price of $25.00, suggesting a potential upside of 1.71%. Heritage Financial has a consensus target price of $34.50, suggesting a potential upside of 10.22%. Given Heritage Financial’s stronger consensus rating and higher probable upside, analysts plainly believe Heritage Financial is more favorable than First Business Financial Services.

Volatility & Risk

First Business Financial Services has a beta of 1.02, suggesting that its share price is 2% more volatile than the S&P 500. Comparatively, Heritage Financial has a beta of 0.5, suggesting that its share price is 50% less volatile than the S&P 500.

Summary

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

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.

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.

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