Starwood Property Trust (NYSE: STWD) and Western Asset Mortgage Capital (NYSE:WMC) are both finance companies, but which is the better investment? We will compare the two businesses based on the strength of their analyst recommendations, risk, dividends, profitability, earnings, institutional ownership and valuation.

Volatility & Risk

Starwood Property Trust has a beta of 0.51, suggesting that its stock price is 49% less volatile than the S&P 500. Comparatively, Western Asset Mortgage Capital has a beta of 0.67, suggesting that its stock price is 33% less volatile than the S&P 500.

Valuation and Earnings

This table compares Starwood Property Trust and Western Asset Mortgage Capital’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Starwood Property Trust $784.67 million 7.23 $365.18 million $1.65 13.18
Western Asset Mortgage Capital $91.33 million 4.60 -$25.01 million $0.59 16.98

Starwood Property Trust has higher revenue and earnings than Western Asset Mortgage Capital. Starwood Property Trust 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 Starwood Property Trust and Western Asset Mortgage Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Starwood Property Trust 52.28% 11.88% 0.79%
Western Asset Mortgage Capital 18.57% 1.81% 0.23%

Analyst Recommendations

This is a summary of recent ratings for Starwood Property Trust and Western Asset Mortgage Capital, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Starwood Property Trust 0 1 2 0 2.67
Western Asset Mortgage Capital 0 2 0 0 2.00

Starwood Property Trust currently has a consensus target price of $24.00, suggesting a potential upside of 10.37%. Western Asset Mortgage Capital has a consensus target price of $10.00, suggesting a potential downside of 0.20%. Given Starwood Property Trust’s stronger consensus rating and higher probable upside, analysts clearly believe Starwood Property Trust is more favorable than Western Asset Mortgage Capital.

Institutional and Insider Ownership

67.5% of Starwood Property Trust shares are owned by institutional investors. Comparatively, 43.0% of Western Asset Mortgage Capital shares are owned by institutional investors. 2.4% of Starwood Property Trust shares are owned by company insiders. Comparatively, 0.4% of Western Asset Mortgage Capital shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Dividends

Starwood Property Trust pays an annual dividend of $1.92 per share and has a dividend yield of 8.8%. Western Asset Mortgage Capital pays an annual dividend of $1.24 per share and has a dividend yield of 12.4%. Starwood Property Trust pays out 116.4% 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

Starwood Property Trust beats Western Asset Mortgage Capital on 13 of the 16 factors compared between the two stocks.

Starwood Property Trust Company Profile

Starwood Property Trust, Inc. is a real estate investment trust. The Company operates through three business segments: Real estate lending (the Lending Segment), which engages primarily in originating, acquiring, financing and managing commercial first mortgages, subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (CMBS), residential mortgage-backed securities, and other real estate and real estate-related debt investments; Real estate investing and servicing (the Investing and Servicing Segment), which includes a servicing business in the United States that manages and works out problem assets; an investment business that selectively acquires and manages unrated, investment grade and non-investment grade rated CMBS, and a mortgage loan business, and Real estate property (the Property Segment), which engages primarily in acquiring and managing equity interests in stabilized commercial real estate 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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