LPL Financial Holdings (NASDAQ: LPLA) and Morgan Stanley (NYSE:MS) are both mid-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, valuation, analyst recommendations, risk, profitabiliy, institutional ownership and earnings.

Dividends

LPL Financial Holdings pays an annual dividend of $1.00 per share and has a dividend yield of 2.4%. Morgan Stanley pays an annual dividend of $0.80 per share and has a dividend yield of 1.8%. LPL Financial Holdings pays out 47.8% of its earnings in the form of a dividend. Morgan Stanley pays out 23.7% 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. LPL Financial Holdings has raised its dividend for 3 consecutive years. LPL Financial Holdings is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider and Institutional Ownership

90.6% of LPL Financial Holdings shares are owned by institutional investors. Comparatively, 85.3% of Morgan Stanley shares are owned by institutional investors. 5.7% of LPL Financial Holdings shares are owned by company insiders. Comparatively, 0.4% of Morgan Stanley shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Analyst Ratings

This is a summary of recent recommendations and price targets for LPL Financial Holdings and Morgan Stanley, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
LPL Financial Holdings 1 3 4 1 2.56
Morgan Stanley 1 8 17 1 2.67

LPL Financial Holdings currently has a consensus price target of $41.67, indicating a potential upside of 0.60%. Morgan Stanley has a consensus price target of $42.00, indicating a potential downside of 5.58%. Given LPL Financial Holdings’ higher possible upside, analysts clearly believe LPL Financial Holdings is more favorable than Morgan Stanley.

Profitability

This table compares LPL Financial Holdings and Morgan Stanley’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
LPL Financial Holdings 4.65% 25.04% 4.31%
Morgan Stanley 16.83% 9.60% 0.82%

Volatility & Risk

LPL Financial Holdings has a beta of 1.82, suggesting that its stock price is 82% more volatile than the S&P 500. Comparatively, Morgan Stanley has a beta of 1.65, suggesting that its stock price is 65% more volatile than the S&P 500.

Earnings & Valuation

This table compares LPL Financial Holdings and Morgan Stanley’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
LPL Financial Holdings $4.08 billion 0.92 $522.98 million $2.09 19.82
Morgan Stanley $36.58 billion 2.25 $6.23 billion $3.37 13.20

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

Summary

LPL Financial Holdings beats Morgan Stanley on 9 of the 17 factors compared between the two stocks.

About LPL Financial Holdings

LPL Financial Holdings Inc. is a broker-dealer, a custodian for registered investment advisors and an independent consultant to retirement plans. The Company provides a platform of brokerage and investment advisory services to independent financial advisors, including financial advisors at financial institutions across the country. It also supported approximately 4,000 financial advisors, affiliated and licensed with insurance companies through customized clearing services, advisory platforms and technology solutions, as of December 31, 2016. Through its advisors, it is a distributor of financial products and services in the United States. It provides its technology and service to advisors through a technology platform that is server-based and Web-accessible. Its technology offerings are designed to permit its advisors to manage various aspects of their businesses. It automates time-consuming processes, such as account opening and management, document imaging and account rebalancing.

About Morgan Stanley

Morgan Stanley is a financial holding company. The Company’s segments include Institutional Securities, Wealth Management and Investment Management. The Company’s Institutional Securities business segment provides investment banking, sales and trading, and other services to corporations, governments, financial institutions and high-to-ultra high net worth clients. The Company’s Wealth Management business segment provides an array of financial services and solutions to individual investors and small-to-medium sized businesses and institutions covering brokerage and investment advisory services, market-making activities in fixed income securities, financial and wealth planning services, annuity and insurance products, credit and other lending products, banking and retirement plan services. The Company’s Investment Management business segment provides a range of investment strategies and products.

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