First Merchants (FRME) versus PacWest Bancorp (PACW) Critical Contrast

First Merchants (NASDAQ: FRME) and PacWest Bancorp (NASDAQ:PACW) are both mid-cap finance companies, but which is the better stock? We will contrast the two businesses based on the strength of their profitability, earnings, analyst recommendations, dividends, institutional ownership, valuation and risk.

Dividends

First Merchants pays an annual dividend of $0.72 per share and has a dividend yield of 1.6%. PacWest Bancorp pays an annual dividend of $2.00 per share and has a dividend yield of 3.7%. First Merchants pays out 29.9% of its earnings in the form of a dividend. PacWest Bancorp pays out 68.5% 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.

Analyst Recommendations

This is a breakdown of current ratings for First Merchants and PacWest Bancorp, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
First Merchants 0 1 1 0 2.50
PacWest Bancorp 0 5 4 2 2.73

First Merchants presently has a consensus target price of $50.00, indicating a potential upside of 10.45%. PacWest Bancorp has a consensus target price of $54.70, indicating a potential upside of 1.54%. Given First Merchants’ higher probable upside, equities research analysts plainly believe First Merchants is more favorable than PacWest Bancorp.

Volatility & Risk

First Merchants has a beta of 0.9, meaning that its stock price is 10% less volatile than the S&P 500. Comparatively, PacWest Bancorp has a beta of 1.46, meaning that its stock price is 46% more volatile than the S&P 500.

Profitability

This table compares First Merchants and PacWest Bancorp’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
First Merchants 26.33% 9.82% 1.36%
PacWest Bancorp 32.53% 8.34% 1.69%

Institutional and Insider Ownership

70.3% of First Merchants shares are owned by institutional investors. Comparatively, 88.0% of PacWest Bancorp shares are owned by institutional investors. 1.4% of First Merchants shares are owned by company insiders. Comparatively, 1.0% of PacWest Bancorp shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Valuation and Earnings

This table compares First Merchants and PacWest Bancorp’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
First Merchants $385.90 million 5.81 $96.07 million $2.41 18.78
PacWest Bancorp $1.18 billion 5.71 $357.81 million $2.92 18.45

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

Summary

PacWest Bancorp beats First Merchants on 11 of the 17 factors compared between the two stocks.

First Merchants Company Profile

First Merchants Corporation operates as the financial holding company for First Merchants Bank that provides community banking services. It accepts time, savings, and demand deposits; and provides consumer, commercial, agri-business, and real estate mortgage loans, as well as rents safe deposit facilities. The company also provides personal and corporate trust, full-service brokerage, corporate, letters of credit, and repurchase agreements services. It operates 119 banking locations in 31 Indiana, 2 Illinois, and 2 Ohio counties. The company's delivery channels include ATMs, check cards, remote deposit capture, interactive voice response systems, and Internet technology. First Merchants Corporation was founded in 1893 and is headquartered in Muncie, Indiana.

PacWest Bancorp Company Profile

PacWest Bancorp operates as the holding company for Pacific Western Bank, a state chartered bank that provides commercial banking products and services. The company accepts demand, money market, and time deposits. It also provides real estate loans to professional developers and real estate investors for the acquisition, refinancing, and construction of commercial real estate properties; small business administration loans; asset-based loans for working capital needs; venture capital loans to support the start-up operations of entrepreneurial companies; and equipment-secured loans and leases. In addition, the company offers consumer loans comprising personal loans, auto loans, home equity lines of credit, revolving lines of credit, and other loans. Further, it provides international banking and multi-state deposit services; money market sweep products; investment advisory and asset management services; treasury and cash management services; telephone banking, and online and mobile banking services; and foreign exchange and ATM services. The company offers its products and services to small and mid-sized companies, entrepreneurial businesses and their venture capital, private equity investors, professionals, and other individuals. As of February 1, 2018, it had 76 full-service branches located throughout the state of California; and one branch in Durham, North Carolina. The company was formerly known as First Community Bancorp and changed its name to PacWest Bancorp in April 2008. PacWest Bancorp was founded in 1999 and is headquartered in Beverly Hills, California.

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