Head to Head Survey: First Merchants (NASDAQ:FRME) & Pinnacle Financial Partners (NYSE:PNFP)

First Merchants (NASDAQ:FRME) and Pinnacle Financial Partners (NYSE:PNFP) are both mid-cap finance companies, but which is the better stock? We will contrast the two companies based on the strength of their valuation, risk, earnings, institutional ownership, profitability, dividends and analyst recommendations.

Dividends

First Merchants pays an annual dividend of $1.48 per share and has a dividend yield of 3.7%. Pinnacle Financial Partners pays an annual dividend of $2.00 per share and has a dividend yield of 2.0%. First Merchants pays out 45.8% of its earnings in the form of a dividend. Pinnacle Financial Partners pays out 26.7% 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. First Merchants has increased its dividend for 13 consecutive years and Pinnacle Financial Partners has increased its dividend for 1 consecutive years. First Merchants is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional & Insider Ownership

73.9% of First Merchants shares are held by institutional investors. Comparatively, 87.4% of Pinnacle Financial Partners shares are held by institutional investors. 1.8% of First Merchants shares are held by insiders. Comparatively, 1.3% of Pinnacle Financial Partners 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.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for First Merchants and Pinnacle Financial Partners, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First Merchants	0	2	3	0	2.60
Pinnacle Financial Partners	0	3	17	1	2.90

First Merchants currently has a consensus target price of $46.00, indicating a potential upside of 13.45%. Pinnacle Financial Partners has a consensus target price of $120.15, indicating a potential upside of 21.39%. Given Pinnacle Financial Partners’ stronger consensus rating and higher possible upside, analysts clearly believe Pinnacle Financial Partners is more favorable than First Merchants.

Profitability

This table compares First Merchants and Pinnacle Financial Partners’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
First Merchants	17.56%	9.14%	1.15%
Pinnacle Financial Partners	15.97%	11.33%	1.25%

Risk and Volatility

First Merchants has a beta of 0.87, suggesting that its share price is 13% less volatile than the S&P 500. Comparatively, Pinnacle Financial Partners has a beta of 1.03, suggesting that its share price is 3% more volatile than the S&P 500.

Valuation and Earnings

This table compares First Merchants and Pinnacle Financial Partners”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First Merchants	$724.47 million	3.51	$226.00 million	$3.23	12.55
Pinnacle Financial Partners	$4.11 billion	1.87	$641.86 million	$7.49	13.21

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

Summary

Pinnacle Financial Partners beats First Merchants on 13 of the 18 factors compared between the two stocks.

About First Merchants

First Merchants Corporation operates as the financial holding company for First Merchants Bank that provides community banking services. The company offers a range of financial services, including time, savings, and demand deposits; and consumer, commercial, agri-business, public finance, and real estate mortgage loans. It also provides personal and corporate trust; brokerage and private wealth management; and letters of credit, repurchase agreements, and other corporate services. The company operates banking locations in Indiana, Illinois, Ohio, and Michigan counties. It also offers its services through electronic and mobile delivery channels. First Merchants Corporation was founded in 1893 and is headquartered in Muncie, Indiana.

About Pinnacle Financial Partners

Pinnacle Financial Partners, Inc. operates as the bank holding company for Pinnacle Bank that provides various banking products and services to individuals, businesses, and professional entities in the United States. It accepts various deposits, including savings, noninterest-bearing and interest-bearing checking, money market, and certificate of deposit accounts; and provides treasury management services, such as online wire origination, enhanced ACH origination, positive pay, zero balance and sweep accounts, automated bill pay services, electronic receivables processing, lockbox processing, and merchant card acceptance services, small business and commercial credit cards corporate purchasing cards, and virtual accounting/deposit escrow solutions. The company also offers equipment and working capital loan; commercial real estate loans, such as investment properties and business loan; secured and unsecured loans comprising installment and term, lines of credit, and residential first mortgage, as well as home equity loans and home equity lines of credit; and credit cards for consumers and businesses. In addition, the company provides investment products; brokerage and investment advisory programs; and fiduciary and investment services, including personal trust, investment management, estate administration, endowments, foundations, individual retirement accounts, escrow services, and custody. Further, it offers insurance agency services in the property and casualty area; investment, merger and acquisition advisory services, private debt, equity and mezzanine, and other middle-market advisory services; and other banking services, including telephone and online banking, mobile banking, debit cards, direct deposit and remote deposit capture, mobile deposit option, automated teller machine, and cash management services. Pinnacle Financial Partners, Inc. was incorporated in 2000 and is headquartered in Nashville, Tennessee.