Federated Investors (FII) vs. Ares Management L.P. (ARES) Critical Analysis

Federated Investors (NYSE: FII) and Ares Management L.P. (NYSE:ARES) are both finance companies, but which is the better stock? We will compare the two companies based on the strength of their earnings, risk, valuation, profitability, institutional ownership, dividends and analyst recommendations.

Dividends

Federated Investors pays an annual dividend of $1.00 per share and has a dividend yield of 3.2%. Ares Management L.P. pays an annual dividend of $1.24 per share and has a dividend yield of 6.8%. Federated Investors pays out 47.6% of its earnings in the form of a dividend. Ares Management L.P. pays out 169.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Valuation & Earnings

This table compares Federated Investors and Ares Management L.P.’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Federated Investors $1.13 billion 2.68 $345.66 million $2.10 14.80
Ares Management L.P. $1.47 billion 2.67 $260.09 million $0.73 25.14

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

Institutional and Insider Ownership

83.3% of Federated Investors shares are owned by institutional investors. Comparatively, 14.6% of Ares Management L.P. shares are owned by institutional investors. 7.1% of Federated Investors shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Profitability

This table compares Federated Investors and Ares Management L.P.’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Federated Investors 19.32% 34.54% 18.68%
Ares Management L.P. 5.86% 40.94% 7.01%

Analyst Ratings

This is a summary of recent ratings and recommmendations for Federated Investors and Ares Management L.P., as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Federated Investors 2 6 0 0 1.75
Ares Management L.P. 0 1 7 0 2.88

Federated Investors currently has a consensus target price of $28.00, suggesting a potential downside of 9.88%. Ares Management L.P. has a consensus target price of $21.00, suggesting a potential upside of 14.44%. Given Ares Management L.P.’s stronger consensus rating and higher probable upside, analysts clearly believe Ares Management L.P. is more favorable than Federated Investors.

Risk & Volatility

Federated Investors has a beta of 1.45, meaning that its stock price is 45% more volatile than the S&P 500. Comparatively, Ares Management L.P. has a beta of 1.25, meaning that its stock price is 25% more volatile than the S&P 500.

Summary

Federated Investors beats Ares Management L.P. on 10 of the 16 factors compared between the two stocks.

Federated Investors Company Profile

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.

Ares Management L.P. Company Profile

Ares Management, L.P. is an alternative asset manager. The Company offers its investors a range of investment strategies. It operates through three segments: Credit Group, Private Equity Group and Real Estate Group. The Credit Group segment manages credit strategies across the non-investment grade credit universe in the United States and Europe. It offers a range of credit strategies across the liquid and illiquid spectrum, including syndicated loans, high yield bonds, credit opportunities, structured credit investments and the United States and European direct lending. The Credit Group provides solutions for traditional fixed income investors. The Private Equity Group segment categorizes its investment strategies as corporate private equity, the United States power and energy infrastructure and special situations. The Real Estate Group segment manages public and private equity and debt strategies. The Real Estate Group manages both a value-add strategy and an opportunistic strategy.

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