Head to Head Review: State Street (NYSE:STT) vs. Saratoga Investment (NYSE:SAR)

Saratoga Investment (NYSE:SAR) and State Street (NYSE:STT) are both finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their profitability, risk, earnings, dividends, valuation, analyst recommendations and institutional ownership.

Risk & Volatility

Saratoga Investment has a beta of 0.57, meaning that its share price is 43% less volatile than the S&P 500. Comparatively, State Street has a beta of 1.41, meaning that its share price is 41% more volatile than the S&P 500.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Saratoga Investment	-3.35%	8.66%	2.78%
State Street	15.81%	16.36%	1.02%

Dividends

Saratoga Investment pays an annual dividend of $3.00 per share and has a dividend yield of 21.8%. State Street pays an annual dividend of $3.68 per share and has a dividend yield of 2.2%. Saratoga Investment pays out -1,200.0% of its earnings in the form of a dividend. State Street pays out 30.0% 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. State Street has raised its dividend for 13 consecutive years. Saratoga Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Ratings

This is a summary of recent recommendations and price targets for Saratoga Investment and State Street, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Saratoga Investment	1	4	0	0	1.80
State Street	0	6	10	0	2.62

Saratoga Investment presently has a consensus target price of $19.67, suggesting a potential upside of 43.03%. State Street has a consensus target price of $189.74, suggesting a potential upside of 11.82%. Given Saratoga Investment’s higher possible upside, research analysts clearly believe Saratoga Investment is more favorable than State Street.

Institutional and Insider Ownership

19.1% of Saratoga Investment shares are held by institutional investors. Comparatively, 87.4% of State Street shares are held by institutional investors. 10.6% of Saratoga Investment shares are held by insiders. Comparatively, 0.3% of State Street shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Valuation and Earnings

This table compares Saratoga Investment and State Street”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Saratoga Investment	$8.73 million	24.50	$36.60 million	($0.25)	-55.00
State Street	$22.63 billion	2.06	$2.94 billion	$12.25	13.85

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

Summary

State Street beats Saratoga Investment on 11 of the 17 factors compared between the two stocks.

About Saratoga Investment

Saratoga Investment Corp. is a business development company specializing in leveraged and management buyouts, acquisition financings, growth financings, recapitalization, debt refinancing, and transitional financing transactions at the lower end of middle market companies. It structures its investments as debt and equity by investing through first and second lien loans, mezzanine debt, co-investments, select high yield bonds, senior secured bonds, unsecured bonds, and preferred and common equity. The firm prefers to invest in aerospace, automotive aftermarket and services, business products and services, consumer products and services, education, environmental services, industrial services, financial services, food and beverage, healthcare products and services, logistics, distribution, manufacturing, restaurants services, food services, software services, technology services, specialty chemical, media and telecommunications. It seeks to invest in the United States. The firm primarily invests $5 million to $50 million in companies having EBITDA of $2 million or greater and revenues of $8 million to $250 million. The firm prefer to take a majority stake. It invests through direct lending as well as participation in loan syndicates. The firm was formerly known as GSC Investment Corp. Saratoga Investment Corp. was formed on 2007 and is based in New York, New York with an additional office in Florham Park, New Jersey.

About State Street

State Street Corporation, through its subsidiaries, provides a range of financial products and services to institutional investors worldwide. The company offers investment servicing products and services, including custody, accounting, regulatory reporting, investor, and performance and analytics; middle office products, such as IBOR, transaction management, loans, cash, derivatives and collateral, record keeping, and client reporting and investment analytics; finance leasing; foreign exchange, and brokerage and other trading services; securities finance and enhanced custody products; deposit and short-term investment facilities; investment manager and alternative investment manager operations outsourcing; performance, risk, and compliance analytics; and financial data management to support institutional investors. It also engages in the provision of portfolio management and risk analytics, as well as trading and post-trade settlement services with integrated compliance and managed data. In addition, the company offers investment management strategies and products, such as core and enhanced indexing, multi-asset strategies, active quantitative and fundamental active capabilities, and alternative investment strategies. Further, it provides services and solutions, including environmental, social, and governance investing; defined benefit and defined contribution; and global fiduciary solutions, as well as exchange-traded funds under the SPDR ETF brand. The company provides its products and services to mutual funds, collective investment funds, UCITS, hedge funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments, and investment managers. State Street Corporation was founded in 1792 and is headquartered in Boston, Massachusetts.