First Merchants (NASDAQ:FRME – Get Free Report) and FS Bancorp (NASDAQ:FSBW – Get Free Report) are both finance companies, but which is the superior business? We will compare the two companies based on the strength of their dividends, profitability, earnings, analyst recommendations, valuation, institutional ownership and risk.
Profitability
This table compares First Merchants and FS Bancorp’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| First Merchants | 17.05% | 8.86% | 1.12% |
| FS Bancorp | 14.88% | 10.86% | 1.05% |
Risk & Volatility
First Merchants has a beta of 0.84, meaning that its share price is 16% less volatile than the S&P 500. Comparatively, FS Bancorp has a beta of 0.66, meaning that its share price is 34% less volatile than the S&P 500.
Analyst Recommendations
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| First Merchants | 0 | 3 | 3 | 0 | 2.50 |
| FS Bancorp | 1 | 2 | 1 | 0 | 2.00 |
First Merchants presently has a consensus price target of $49.00, suggesting a potential upside of 19.09%. FS Bancorp has a consensus price target of $45.00, suggesting a potential upside of 3.16%. Given First Merchants’ stronger consensus rating and higher probable upside, research analysts plainly believe First Merchants is more favorable than FS Bancorp.
Dividends
First Merchants pays an annual dividend of $1.48 per share and has a dividend yield of 3.6%. FS Bancorp pays an annual dividend of $1.16 per share and has a dividend yield of 2.7%. First Merchants pays out 47.4% of its earnings in the form of a dividend. FS Bancorp 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 FS Bancorp has increased its dividend for 12 consecutive years. First Merchants is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.
Insider and Institutional Ownership
73.9% of First Merchants shares are held by institutional investors. Comparatively, 63.9% of FS Bancorp shares are held by institutional investors. 1.8% of First Merchants shares are held by insiders. Comparatively, 12.9% of FS Bancorp shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.
Valuation and Earnings
This table compares First Merchants and FS Bancorp”s top-line revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| First Merchants | $1.05 billion | 2.46 | $226.00 million | $3.12 | 13.19 |
| FS Bancorp | $219.52 million | 1.48 | $33.35 million | $4.34 | 10.05 |
First Merchants has higher revenue and earnings than FS Bancorp. FS Bancorp is trading at a lower price-to-earnings ratio than First Merchants, indicating that it is currently the more affordable of the two stocks.
Summary
First Merchants beats FS Bancorp on 13 of the 17 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 FS Bancorp
FS Bancorp, Inc. operates as a bank holding company for 1st Security Bank of Washington that provides banking and financial services to local families, local and regional businesses, and industry niches. The company operates in two segments, Commercial and Consumer Banking; and Home Lending. It offers various deposit instruments, including checking accounts, money market deposit accounts, savings accounts, and certificates of deposit. The company provides one-to-four-family residential first mortgages, second mortgage/home equity loan products, non-mortgage commercial business loans, commercial real estate loans, and construction and development loans, as well as consumer loans, which primarily include personal lines of credit, credit cards, automobile, direct home improvement, loans on deposit, and recreational loans. It operates full bank service branches and home loan production offices in suburban communities in the greater Puget Sound area, including Snohomish, King, Pierce, Jefferson, Kitsap, Clallam, Grays Harbor, and Thurston counties; and a loan production office in the market area of the Tri-Cities. FS Bancorp, Inc. was founded in 1936 and is headquartered in Mountlake Terrace, Washington.
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