Critical Analysis: East West Bancorp (NASDAQ:EWBC) and Cathay General Bancorp (NASDAQ:CATY)

East West Bancorp (NASDAQ:EWBC) and Cathay General Bancorp (NASDAQ:CATY) are both finance companies, but which is the better investment? We will compare the two businesses based on the strength of their dividends, valuation, profitability, earnings, risk, institutional ownership and analyst recommendations.

Analyst Recommendations

This is a breakdown of current ratings and price targets for East West Bancorp and Cathay General Bancorp, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
East West Bancorp	1	5	10	1	2.65
Cathay General Bancorp	1	3	2	0	2.17

East West Bancorp presently has a consensus price target of $124.08, suggesting a potential upside of 24.13%. Cathay General Bancorp has a consensus price target of $50.60, suggesting a potential upside of 10.41%. Given East West Bancorp’s stronger consensus rating and higher possible upside, research analysts clearly believe East West Bancorp is more favorable than Cathay General Bancorp.

Profitability

This table compares East West Bancorp and Cathay General Bancorp’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
East West Bancorp	27.16%	15.55%	1.63%
Cathay General Bancorp	22.26%	10.60%	1.30%

Institutional and Insider Ownership

89.5% of East West Bancorp shares are held by institutional investors. Comparatively, 75.0% of Cathay General Bancorp shares are held by institutional investors. 1.0% of East West Bancorp shares are held by insiders. Comparatively, 4.9% of Cathay General Bancorp shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Valuation & Earnings

This table compares East West Bancorp and Cathay General Bancorp”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
East West Bancorp	$2.81 billion	4.90	$1.17 billion	$9.07	11.02
Cathay General Bancorp	$781.55 million	4.05	$285.98 million	$4.33	10.58

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

Volatility and Risk

East West Bancorp has a beta of 0.93, suggesting that its stock price is 7% less volatile than the S&P 500. Comparatively, Cathay General Bancorp has a beta of 0.94, suggesting that its stock price is 6% less volatile than the S&P 500.

Dividends

East West Bancorp pays an annual dividend of $2.40 per share and has a dividend yield of 2.4%. Cathay General Bancorp pays an annual dividend of $1.36 per share and has a dividend yield of 3.0%. East West Bancorp pays out 26.5% of its earnings in the form of a dividend. Cathay General Bancorp pays out 31.4% 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. East West Bancorp has raised its dividend for 8 consecutive years.

Summary

East West Bancorp beats Cathay General Bancorp on 15 of the 18 factors compared between the two stocks.

About East West Bancorp

East West Bancorp, Inc. operates as the bank holding company for East West Bank that provides a range of personal and commercial banking services to businesses and individuals in the United States. The company operates through three segments: Consumer and Business Banking, Commercial Banking, and Other. It accepts various deposit products, such as personal and business checking and savings accounts, money market, and time deposits. The company’s loan products include mortgage and home equity, commercial and residential real estate, working capital lines of credit, construction finance, trade finance, letters of credit, commercial business, affordable housing loans, asset-based lending, asset-backed finance, project finance, loan syndication, and equipment financing, as well as financing services for clients to facilitate their business transactions between the United States and Asia. It also provides various wealth management, treasury management, foreign exchange, and interest rate and commodity risk hedging services; and mobile and online banking services. The company was founded in 1973 and is headquartered in Pasadena, California.

About Cathay General Bancorp

Cathay General Bancorp operates as the holding company for Cathay Bank that offers various commercial banking products and services to individuals, professionals, and small to medium-sized businesses in the United States. The company offers various deposit products, including passbook accounts, checking accounts, money market deposit accounts, certificates of deposit, individual retirement accounts, and public funds deposits. It also provides loan products, such as commercial mortgage loans, commercial loans, small business administration loans, residential mortgage loans, real estate construction loans, and home equity lines of credit, as well as installment loans to individuals for household, and other consumer expenditures. In addition, the company offers trade financing, letter of credit, wire transfer, forward currency spot and forward contract, safe deposit, collection, automatic teller machine, Internet banking, investment, and other customary bank services, as well as securities and insurance products. Cathay General Bancorp was founded in 1962 and is headquartered in Los Angeles, California.