Preferred Bank (NASDAQ:PFBC) vs. Farmers National Banc (NASDAQ:FMNB) Critical Analysis

Farmers National Banc (NASDAQ:FMNB) and Preferred Bank (NASDAQ:PFBC) are both small-cap finance companies, but which is the superior stock? We will compare the two companies based on the strength of their dividends, risk, profitability, institutional ownership, earnings, analyst recommendations and valuation.

Dividends

Farmers National Banc pays an annual dividend of $0.68 per share and has a dividend yield of 4.9%. Preferred Bank pays an annual dividend of $3.00 per share and has a dividend yield of 3.5%. Farmers National Banc pays out 55.3% of its earnings in the form of a dividend. Preferred Bank pays out 30.1% 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.

Risk and Volatility

Farmers National Banc has a beta of 0.86, suggesting that its stock price is 14% less volatile than the S&P 500. Comparatively, Preferred Bank has a beta of 0.96, suggesting that its stock price is 4% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Farmers National Banc and Preferred Bank, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Farmers National Banc	0	2	1	0	2.33
Preferred Bank	0	1	1	0	2.50

Farmers National Banc presently has a consensus price target of $16.67, suggesting a potential upside of 19.65%. Preferred Bank has a consensus price target of $99.50, suggesting a potential upside of 16.35%. Given Farmers National Banc’s higher possible upside, analysts clearly believe Farmers National Banc is more favorable than Preferred Bank.

Valuation and Earnings

This table compares Farmers National Banc and Preferred Bank”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Farmers National Banc	$170.92 million	3.06	$49.93 million	$1.23	11.33
Preferred Bank	$281.54 million	4.38	$150.04 million	$9.98	8.57

Preferred Bank has higher revenue and earnings than Farmers National Banc. Preferred Bank is trading at a lower price-to-earnings ratio than Farmers National Banc, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

38.7% of Farmers National Banc shares are owned by institutional investors. Comparatively, 72.8% of Preferred Bank shares are owned by institutional investors. 4.0% of Farmers National Banc shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Profitability

This table compares Farmers National Banc and Preferred Bank’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Farmers National Banc	17.26%	11.92%	0.95%
Preferred Bank	26.20%	19.01%	2.01%

Summary

Preferred Bank beats Farmers National Banc on 11 of the 15 factors compared between the two stocks.

About Farmers National Banc

Farmers National Banc Corp. operates as a bank holding company for The Farmers National Bank of Canfield engages in the banking, trust, retirement consulting, insurance, and financial management businesses. It offers commercial and retail banking services, including checking, savings, and time deposit accounts; commercial, mortgage and installment, and home equity loans; home equity lines of credit, night depository, safe deposit box, money order, bank check, automated teller machine, Internet banking, travel card, E bond transaction, brokerage, and other services. The company also provides personal and corporate trust services in the areas of estate settlement, trust administration, employee benefit plans, and retirement services; property and casualty insurance products and services; and various insurance products through licensed representatives, as well as invests in municipal securities. The company was founded in 1887 and is headquartered in Canfield, Ohio.

About Preferred Bank

Preferred Bank provides various commercial banking products and services to small and mid-sized businesses and their owners, entrepreneurs, real estate developers and investors, professionals, and high net worth individuals. The company accepts checking, savings, and money market deposit accounts; fixed-rate and fixed maturity retail, and non-retail certificates of deposit; and individual retirement accounts. It also provides real estate mortgage loans that are secured by retail, industrial, office, special purpose, and residential single and multi-family properties; real estate construction loans; commercial loans comprising lines of credit for working capital, term loans for capital expenditures, and commercial and stand-by letters of credit; and small business administration loans. In addition, the company offers trade finance services, including commercial and export letters of credit, import lines of credit, documentary collections, international wire transfers, acceptances/trust receipt financing products, export financing, and bills purchase programs. Further, it provides cash management services; and internet, mobile, and tablet banking services. The company operates through full-service branch offices in the California counties of Los Angeles, Orange and San Francisco; Flushing, New York; Houston suburb of Sugar Land, Texas; and a satellite office in Manhattan, New York. The company was incorporated in 1991 and is headquartered in Los Angeles, California.