Ellington Financial (NYSE: EFC) and PennyMac Financial Services (NYSE:PFSI) are both small-cap retail & mortgage banks companies, but which is the superior stock? We will contrast the two companies based on the strength of their earnings, valuation, profitability, institutional ownership, analyst recommendations, risk and dividends.

Profitability

This table compares Ellington Financial and PennyMac Financial Services’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ellington Financial 26.67% 5.48% 1.32%
PennyMac Financial Services 6.47% 4.20% 1.09%

Dividends

Ellington Financial pays an annual dividend of $1.80 per share and has a dividend yield of 11.8%. PennyMac Financial Services does not pay a dividend. Ellington Financial pays out 257.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Insider and Institutional Ownership

50.0% of Ellington Financial shares are owned by institutional investors. Comparatively, 87.6% of PennyMac Financial Services shares are owned by institutional investors. 10.6% of Ellington Financial shares are owned by company insiders. Comparatively, 45.6% of PennyMac Financial Services shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for Ellington Financial and PennyMac Financial Services, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ellington Financial 0 0 2 0 3.00
PennyMac Financial Services 1 1 4 0 2.50

Ellington Financial presently has a consensus target price of $18.75, indicating a potential upside of 22.71%. PennyMac Financial Services has a consensus target price of $20.33, indicating a potential upside of 8.16%. Given Ellington Financial’s stronger consensus rating and higher probable upside, equities research analysts plainly believe Ellington Financial is more favorable than PennyMac Financial Services.

Earnings & Valuation

This table compares Ellington Financial and PennyMac Financial Services’ top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Ellington Financial $80.18 million 6.12 -$16.00 million $0.70 21.83
PennyMac Financial Services $931.89 million 0.47 $66.07 million $0.79 23.80

PennyMac Financial Services has higher revenue and earnings than Ellington Financial. Ellington Financial is trading at a lower price-to-earnings ratio than PennyMac Financial Services, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Ellington Financial has a beta of 0.41, indicating that its stock price is 59% less volatile than the S&P 500. Comparatively, PennyMac Financial Services has a beta of 0.63, indicating that its stock price is 37% less volatile than the S&P 500.

About Ellington Financial

Ellington Financial LLC is a specialty finance company that acquires and manages mortgage-related and other financial assets. The Company’s targeted assets include residential mortgage-backed securities (RMBS), backed by loans for which the principal and interest payments are not guaranteed by a United States Government agency or a United States Government-sponsored entity, collectively referred to as non-Agency RMBS; RMBS for which the principal and interest payments are guaranteed by the United States government agency or the United States government-sponsored entity (Agency RMBS); consumer loans and asset-backed securities (ABS) backed by consumer loans; commercial mortgage-backed securities (CMBS) commercial mortgage loans and other commercial real estate debt; residential mortgage loans; collateralized loan obligations (CLOs); corporate debt and equity, including distressed debt and equity, and mortgage-related derivatives.

About PennyMac Financial Services

PennyMac Financial Services, Inc. (PFSI) is a financial services company. The Company is focused on the production and servicing of the United States residential mortgage loans and the management of investments related to the United States mortgage market. The Company operates through three segments: loan production, loan servicing and investment management. PFSI’s mortgage banking subsidiary, PennyMac Loan Services, LLC (PLS), is a non-bank producer and servicer of mortgage loans in the United States. As of December 31, 2016, PLS serviced loans in all 50 states, the District of Columbia, Guam and the United States Virgin Islands, and originated loans in 49 states and the District of Columbia. PFSI’s investment management subsidiary, PNMAC Capital Management, LLC (PCM), is an investment advisor. PLS is a seller and servicer for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

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