Ares Commercial Real Estate (NYSE: ACRE) and Western Asset Mortgage Capital (NYSE:WMC) are both small-cap finance companies, but which is the superior business? We will compare the two companies based on the strength of their profitability, dividends, risk, analyst recommendations, institutional ownership, valuation and earnings.

Analyst Ratings

This is a breakdown of current recommendations and price targets for Ares Commercial Real Estate and Western Asset Mortgage Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ares Commercial Real Estate 1 2 2 0 2.20
Western Asset Mortgage Capital 0 2 0 0 2.00

Ares Commercial Real Estate currently has a consensus price target of $14.25, suggesting a potential upside of 6.03%. Western Asset Mortgage Capital has a consensus price target of $10.00, suggesting a potential downside of 1.77%. Given Ares Commercial Real Estate’s stronger consensus rating and higher probable upside, analysts clearly believe Ares Commercial Real Estate is more favorable than Western Asset Mortgage Capital.

Valuation and Earnings

This table compares Ares Commercial Real Estate and Western Asset Mortgage Capital’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Ares Commercial Real Estate $81.96 million 4.69 $40.33 million $1.14 11.79
Western Asset Mortgage Capital $91.33 million 4.67 -$25.01 million $0.59 17.25

Ares Commercial Real Estate has higher revenue, but lower earnings than Western Asset Mortgage Capital. Ares Commercial Real Estate is trading at a lower price-to-earnings ratio than Western Asset Mortgage Capital, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Ares Commercial Real Estate and Western Asset Mortgage Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ares Commercial Real Estate 33.69% 7.76% 2.16%
Western Asset Mortgage Capital 18.57% 1.81% 0.23%

Risk and Volatility

Ares Commercial Real Estate has a beta of 0.68, suggesting that its stock price is 32% less volatile than the S&P 500. Comparatively, Western Asset Mortgage Capital has a beta of 0.68, suggesting that its stock price is 32% less volatile than the S&P 500.

Institutional and Insider Ownership

63.4% of Ares Commercial Real Estate shares are held by institutional investors. Comparatively, 41.7% of Western Asset Mortgage Capital shares are held by institutional investors. 1.8% of Ares Commercial Real Estate shares are held by company insiders. Comparatively, 0.4% of Western Asset Mortgage Capital shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Dividends

Ares Commercial Real Estate pays an annual dividend of $1.08 per share and has a dividend yield of 8.0%. Western Asset Mortgage Capital pays an annual dividend of $1.24 per share and has a dividend yield of 12.2%. Ares Commercial Real Estate pays out 94.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Western Asset Mortgage Capital pays out 210.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Summary

Ares Commercial Real Estate beats Western Asset Mortgage Capital on 12 of the 15 factors compared between the two stocks.

Ares Commercial Real Estate Company Profile

Ares Commercial Real Estate Corporation is a specialty finance company. The Company is primarily engaged in originating and investing in commercial real estate (CRE) loans and related investments. The Company operates through principal lending segment. Its target investments include senior mortgage loans, subordinated debt, preferred equity, mezzanine loans and other CRE investment opportunities, including commercial mortgage-backed securities. These investments are generally held for investment and are secured, directly or indirectly, by office, multifamily, retail, industrial, lodging, senior-living, self-storage and other commercial real estate properties, or by ownership interests therein. Through the Company’s manager, Ares Commercial Real Estate Management LLC, it has investment professionals located across the United States and Europe who directly source loan opportunities for the Company with owners, operators and sponsors of CRE properties.

Western Asset Mortgage Capital Company Profile

Western Asset Mortgage Capital Corporation is a real estate investment trust. The Company is focused on investing in, financing and managing a diversified portfolio of real estate-related securities, whole-loans and other financial assets. The Company’s portfolio includes Agency residential mortgage-backed securities (RMBS), including Mortgage pass-through certificates, Agency derivatives, Agency Interest-Only Strips and Agency collateralized mortgage obligations (CMOs); Non-Agency RMBS, and Agency commercial mortgage-backed securities (CMBS), Non-Agency CMBS, Non United States CMBS and asset-backed securities (ABS), as well as Residential and Commercial Whole-Loans. The Company may utilize to-be-announced forward contracts (TBAs), in order to invest in Agency RMBS. The Company’s manager is Western Asset Management Company.

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