Walker & Dunlop (NYSE: WD) and PennyMac Financial Services (NYSE:PFSI) are both small-cap finance companies, but which is the better business? We will contrast the two businesses based on the strength of their profitability, risk, dividends, earnings, institutional ownership, analyst recommendations and valuation.

Analyst Ratings

This is a summary of current recommendations and price targets for Walker & Dunlop and PennyMac Financial Services, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Walker & Dunlop 0 1 1 0 2.50
PennyMac Financial Services 1 1 4 0 2.50

Walker & Dunlop currently has a consensus target price of $52.00, suggesting a potential upside of 7.08%. PennyMac Financial Services has a consensus target price of $20.33, suggesting a potential upside of 2.43%. Given Walker & Dunlop’s higher possible upside, research analysts plainly believe Walker & Dunlop is more favorable than PennyMac Financial Services.

Volatility & Risk

Walker & Dunlop has a beta of 1.44, indicating that its stock price is 44% more 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.

Insider & Institutional Ownership

77.6% of Walker & Dunlop shares are held by institutional investors. Comparatively, 91.0% of PennyMac Financial Services shares are held by institutional investors. 11.7% of Walker & Dunlop shares are held by insiders. Comparatively, 45.6% of PennyMac Financial Services 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 Walker & Dunlop and PennyMac Financial Services’ gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Walker & Dunlop $575.28 million 2.62 $113.89 million $4.65 10.44
PennyMac Financial Services $931.89 million 0.50 $66.07 million $2.62 7.58

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

Profitability

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

Net Margins Return on Equity Return on Assets
Walker & Dunlop 21.81% 22.35% 4.65%
PennyMac Financial Services 6.47% 4.11% 1.06%

Summary

Walker & Dunlop beats PennyMac Financial Services on 9 of the 13 factors compared between the two stocks.

Walker & Dunlop Company Profile

Walker & Dunlop, Inc. is a holding company, which conducts its operations through Walker & Dunlop, LLC. The Company provides commercial real estate financial products and services primarily to developers and owners of multifamily properties. The Company originates, sells and services a range of multifamily and other commercial real estate financing products, including Multifamily Finance, Federal Housing Administration (FHA) Finance, Capital Markets, and Proprietary Capital. It originates and sells loans through the programs of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac, and together with Fannie Mae, the government-sponsored enterprises (GSEs)), the Government National Mortgage Association (Ginnie Mae) and the Federal Housing Administration, a division of the United States Department of Housing and Urban Development (together with Ginnie Mae, HUD).

PennyMac Financial Services Company Profile

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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