Legg Mason (NYSE: LM) and Federated Investors (NYSE:FII) are both mid-cap finance companies, but which is the better stock? We will contrast the two companies based on the strength of their institutional ownership, analyst recommendations, profitability, risk, dividends, earnings and valuation.

Analyst Recommendations

This is a summary of recent ratings and target prices for Legg Mason and Federated Investors, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Legg Mason 2 4 4 0 2.20
Federated Investors 2 5 0 0 1.71

Legg Mason presently has a consensus target price of $44.40, suggesting a potential upside of 38.84%. Federated Investors has a consensus target price of $28.92, suggesting a potential upside of 29.27%. Given Legg Mason’s stronger consensus rating and higher probable upside, analysts plainly believe Legg Mason is more favorable than Federated Investors.

Volatility & Risk

Legg Mason has a beta of 1.92, indicating that its share price is 92% more volatile than the S&P 500. Comparatively, Federated Investors has a beta of 1.29, indicating that its share price is 29% more volatile than the S&P 500.

Dividends

Legg Mason pays an annual dividend of $1.36 per share and has a dividend yield of 4.3%. Federated Investors pays an annual dividend of $1.08 per share and has a dividend yield of 4.8%. Legg Mason pays out 36.6% of its earnings in the form of a dividend. Federated Investors pays out 49.5% 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. Legg Mason has increased its dividend for 8 consecutive years.

Valuation and Earnings

This table compares Legg Mason and Federated Investors’ gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Legg Mason $3.14 billion 0.87 $285.07 million $3.72 8.60
Federated Investors $1.10 billion 2.04 $291.34 million $2.18 10.26

Federated Investors has lower revenue, but higher earnings than Legg Mason. Legg Mason is trading at a lower price-to-earnings ratio than Federated Investors, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

88.9% of Legg Mason shares are held by institutional investors. Comparatively, 83.1% of Federated Investors shares are held by institutional investors. 4.3% of Legg Mason shares are held by insiders. Comparatively, 5.3% of Federated Investors shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Profitability

This table compares Legg Mason and Federated Investors’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Legg Mason 11.87% 8.12% 3.90%
Federated Investors 26.70% 31.51% 19.28%

Summary

Legg Mason beats Federated Investors on 9 of the 17 factors compared between the two stocks.

Legg Mason Company Profile

Legg Mason, Inc. is a publicly owned asset management holding company. Through its subsidiaries, the firm provides investment management and related services to company-sponsored mutual funds and other investment vehicles including pension funds, foundations, endowments, sovereign wealth funds, insurance companies, private banks, family offices, individuals, as well as to global, institutional, and retail clients. It launches and manages equity, fixed income, and multi-asset customized portfolios through its subsidiaries. The firm also launches and manages mutual funds and exchange traded funds for its clients through its subsidiaries. It invests in private and public equity, fixed income, and multi asset markets across the globe through its subsidiaries. Through its subsidiaries, the firm also invests in alternative markets. It also employs a combination of fundamental and quantitative research to make its investments through its subsidiaries. Legg Mason, Inc. was founded in 1899 and is based in Baltimore, Maryland.

Federated Investors Company Profile

Federated Investors, Inc. is a publicly owned asset management holding company. Through its subsidiaries, the firm provides its services to individuals, including high net worth individuals, banking or thrift institutions, investment companies, pension and profit sharing plans, pooled investment vehicles, charitable organizations, state or municipal government entities, and registered investment advisors. Through its subsidiaries, it manages separate client-focused equity, fixed income, balanced and money market mutual funds along with separate client-focused equity, fixed income, money market, and balanced portfolios. Through its subsidiaries, the firm invests in the public equity and fixed income markets across the globe. It invests in growth and value stocks of small-cap, mid-cap, and large-cap companies. The firm makes its fixed income investments in ultra-short, short-term, and intermediate-term mortgage-backed, U.S. Government, U.S. corporate, high yield, and municipal securities. It employs both fundamental and quantitative analysis to make its equity investments. Federated Investors, Inc. was founded in 1955 and is based in Pittsburgh, Pennsylvania with additional offices in New York City and London, United Kingdom.

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