Head-To-Head Analysis: Fifth Street Asset Management (FSAM) & Federated Investors (FII)

Fifth Street Asset Management (NASDAQ: FSAM) and Federated Investors (NYSE:FII) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their analyst recommendations, earnings, risk, valuation, profitability, institutional ownership and dividends.

Volatility and Risk

Fifth Street Asset Management has a beta of 0.33, meaning that its stock price is 67% less volatile than the S&P 500. Comparatively, Federated Investors has a beta of 1.42, meaning that its stock price is 42% more volatile than the S&P 500.

Institutional and Insider Ownership

8.6% of Fifth Street Asset Management shares are held by institutional investors. Comparatively, 82.9% of Federated Investors shares are held by institutional investors. 86.0% of Fifth Street Asset Management shares are held by company insiders. Comparatively, 7.1% of Federated Investors shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a summary of current ratings for Fifth Street Asset Management and Federated Investors, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Fifth Street Asset Management 0 1 0 0 2.00
Federated Investors 2 4 0 0 1.67

Fifth Street Asset Management currently has a consensus target price of $4.00, indicating a potential upside of 1.27%. Federated Investors has a consensus target price of $23.50, indicating a potential downside of 16.22%. Given Fifth Street Asset Management’s stronger consensus rating and higher possible upside, equities analysts clearly believe Fifth Street Asset Management is more favorable than Federated Investors.

Profitability

This table compares Fifth Street Asset Management and Federated Investors’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Fifth Street Asset Management -0.63% -399.09% 11.43%
Federated Investors 18.91% 33.93% 18.36%

Earnings & Valuation

This table compares Fifth Street Asset Management and Federated Investors’ top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Fifth Street Asset Management $71.87 million 0.86 $35.88 million ($0.14) -28.21
Federated Investors $1.13 billion 2.52 $345.66 million $2.08 13.49

Federated Investors has higher revenue and earnings than Fifth Street Asset Management. Fifth Street Asset Management is trading at a lower price-to-earnings ratio than Federated Investors, indicating that it is currently the more affordable of the two stocks.

Dividends

Fifth Street Asset Management pays an annual dividend of $0.35 per share and has a dividend yield of 8.9%. Federated Investors pays an annual dividend of $1.00 per share and has a dividend yield of 3.6%. Fifth Street Asset Management pays out -250.0% of its earnings in the form of a dividend. Federated Investors pays out 48.1% 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. Fifth Street Asset Management is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Federated Investors beats Fifth Street Asset Management on 10 of the 15 factors compared between the two stocks.

About Fifth Street Asset Management

Fifth Street Asset Management Inc. is an alternative asset manager. The Company provides asset management services to its investment funds (the Fifth Street Funds or the funds), which consist of Fifth Street Finance Corp. (FSC) and Fifth Street Senior Floating Rate Corp. (FSFR), both publicly-traded business development companies (together, the BDCs). Its segment provides asset management services to the Fifth Street Funds. The Company conducts all of its operations through its subsidiaries, Fifth Street Management LLC (FSM), Fifth Street CLO Management LLC (CLO Management) and FSCO GP LLC (FSCO GP). The funds, managed by the Company, provide financing solutions to small and mid-sized companies across their capital structures, mainly in connection with investments by private equity sponsors. It provides credit solutions across the capital structure, including one-stop financing, unitranche debt, senior secured debt, mezzanine debt, equity co-investments and venture debt financing.

About Federated Investors

Federated Investors, Inc. (Federated) is a provider of investment management products and related financial services. Federated operates through investment management business segment. It is engaged in sponsoring, marketing and providing investment-related services to various investment products, including mutual funds and Separate Accounts, which include separately managed accounts, institutional accounts, sub-advised funds and other managed products. It operates in one segment, the investment management business. As of December 31, 2016, Federated provided investment advisory services to 124 sponsored investment companies and other funds (Federated Funds). It markets these funds to banks, brokers and dealers and other financial intermediaries using them to meet the needs of their customers and clients, including retail investors, corporations and retirement plans. The Company offers a range of products and strategies, including money market, equity and fixed-income investments.

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