PennyMac Financial Services (PFSI) versus Berkshire Hills Bancorp (BHLB) Financial Review

PennyMac Financial Services (NYSE: PFSI) and Berkshire Hills Bancorp (NYSE:BHLB) are both small-cap finance companies, but which is the better business? We will contrast the two businesses based on the strength of their profitability, earnings, risk, dividends, analyst recommendations, institutional ownership and valuation.

Dividends

Berkshire Hills Bancorp pays an annual dividend of $0.84 per share and has a dividend yield of 2.3%. PennyMac Financial Services does not pay a dividend. Berkshire Hills Bancorp pays out 45.2% of its earnings in the form of a dividend. PennyMac Financial Services has increased its dividend for 2 consecutive years.

Insider and Institutional Ownership

87.5% of PennyMac Financial Services shares are owned by institutional investors. Comparatively, 74.6% of Berkshire Hills Bancorp shares are owned by institutional investors. 45.6% of PennyMac Financial Services shares are owned by company insiders. Comparatively, 2.8% of Berkshire Hills Bancorp shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Earnings and Valuation

This table compares PennyMac Financial Services and Berkshire Hills Bancorp’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
PennyMac Financial Services $931.89 million 0.48 $66.07 million $2.62 7.40
Berkshire Hills Bancorp $346.29 million 4.81 $58.67 million $1.86 19.79

PennyMac Financial Services has higher revenue and earnings than Berkshire Hills Bancorp. PennyMac Financial Services is trading at a lower price-to-earnings ratio than Berkshire Hills Bancorp, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

PennyMac Financial Services has a beta of 0.63, suggesting that its stock price is 37% less volatile than the S&P 500. Comparatively, Berkshire Hills Bancorp has a beta of 0.69, suggesting that its stock price is 31% less volatile than the S&P 500.

Profitability

This table compares PennyMac Financial Services and Berkshire Hills Bancorp’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
PennyMac Financial Services 6.47% 4.11% 1.06%
Berkshire Hills Bancorp 15.54% 6.93% 0.87%

Analyst Recommendations

This is a summary of recent ratings and recommmendations for PennyMac Financial Services and Berkshire Hills Bancorp, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
PennyMac Financial Services 1 1 4 0 2.50
Berkshire Hills Bancorp 0 2 3 0 2.60

PennyMac Financial Services presently has a consensus target price of $20.33, suggesting a potential upside of 4.81%. Berkshire Hills Bancorp has a consensus target price of $40.38, suggesting a potential upside of 9.71%. Given Berkshire Hills Bancorp’s stronger consensus rating and higher possible upside, analysts plainly believe Berkshire Hills Bancorp is more favorable than PennyMac Financial Services.

Summary

PennyMac Financial Services beats Berkshire Hills Bancorp on 9 of the 17 factors compared between the two stocks.

About PennyMac Financial Services

PennyMac Financial Services, Inc. (PFSI) is a financial services company. The Company is focused on the production and servicing of the United States residential mortgage loans and the management of investments related to the United States mortgage market. The Company operates through three segments: loan production, loan servicing and investment management. PFSI’s mortgage banking subsidiary, PennyMac Loan Services, LLC (PLS), is a non-bank producer and servicer of mortgage loans in the United States. As of December 31, 2016, PLS serviced loans in all 50 states, the District of Columbia, Guam and the United States Virgin Islands, and originated loans in 49 states and the District of Columbia. PFSI’s investment management subsidiary, PNMAC Capital Management, LLC (PCM), is an investment advisor. PLS is a seller and servicer for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

About Berkshire Hills Bancorp

Berkshire Hills Bancorp, Inc. (Berkshire) is a holding company for Berkshire Bank (the Bank) and Berkshire Insurance Group. Berkshire offers a range of deposit, lending, insurance and wealth management products to retail, commercial, not-for-profit and municipal customers in its market areas. Berkshire product offerings also include retail and commercial electronic banking, commercial cash management and commercial interest rate swaps. The Bank’s loan portfolio consists of commercial loans, which include residential mortgages, commercial real estate, commercial and industrial loans, and consumer loans. The Bank’s securities available for sale include municipal bonds and obligations, mortgage-backed securities, other bonds and obligations, and marketable equity securities. As of October 16, 2017, the Bank had 113 full service branch offices in Massachusetts, New York, Connecticut, Vermont, New Jersey and Pennsylvania.

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