Contrasting Western Asset Mortgage Capital Corporation (WMC) and Ares Commercial Real Estate Corporation (ACRE)

Western Asset Mortgage Capital Corporation (NYSE: WMC) and Ares Commercial Real Estate Corporation (NYSE:ACRE) are both small-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their earnings, profitability, valuation, institutional ownership, analyst recommendations, risk and dividends.

Dividends

Western Asset Mortgage Capital Corporation pays an annual dividend of $1.24 per share and has a dividend yield of 12.7%. Ares Commercial Real Estate Corporation pays an annual dividend of $1.08 per share and has a dividend yield of 8.2%. Western Asset Mortgage Capital Corporation pays out 210.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Ares Commercial Real Estate Corporation pays out 95.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Insider and Institutional Ownership

41.7% of Western Asset Mortgage Capital Corporation shares are held by institutional investors. Comparatively, 63.4% of Ares Commercial Real Estate Corporation shares are held by institutional investors. 0.4% of Western Asset Mortgage Capital Corporation shares are held by company insiders. Comparatively, 1.8% of Ares Commercial Real Estate Corporation shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Risk and Volatility

Western Asset Mortgage Capital Corporation has a beta of 0.68, indicating that its share price is 32% less volatile than the S&P 500. Comparatively, Ares Commercial Real Estate Corporation has a beta of 0.68, indicating that its share price is 32% less volatile than the S&P 500.

Valuation & Earnings

This table compares Western Asset Mortgage Capital Corporation and Ares Commercial Real Estate Corporation’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Western Asset Mortgage Capital Corporation $91.33 million 4.47 -$25.01 million $0.59 16.49
Ares Commercial Real Estate Corporation $81.96 million 4.59 $40.33 million $1.13 11.65

Ares Commercial Real Estate Corporation has higher revenue, but lower earnings than Western Asset Mortgage Capital Corporation. Ares Commercial Real Estate Corporation is trading at a lower price-to-earnings ratio than Western Asset Mortgage Capital Corporation, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Western Asset Mortgage Capital Corporation and Ares Commercial Real Estate Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Western Asset Mortgage Capital Corporation 18.57% 1.81% 0.23%
Ares Commercial Real Estate Corporation 33.69% 7.76% 2.16%

Analyst Recommendations

This is a summary of current recommendations and price targets for Western Asset Mortgage Capital Corporation and Ares Commercial Real Estate Corporation, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Western Asset Mortgage Capital Corporation 0 2 0 0 2.00
Ares Commercial Real Estate Corporation 1 2 3 0 2.33

Western Asset Mortgage Capital Corporation currently has a consensus price target of $10.00, indicating a potential upside of 2.77%. Ares Commercial Real Estate Corporation has a consensus price target of $14.42, indicating a potential upside of 9.55%. Given Ares Commercial Real Estate Corporation’s stronger consensus rating and higher probable upside, analysts clearly believe Ares Commercial Real Estate Corporation is more favorable than Western Asset Mortgage Capital Corporation.

Summary

Ares Commercial Real Estate Corporation beats Western Asset Mortgage Capital Corporation on 12 of the 15 factors compared between the two stocks.

Western Asset Mortgage Capital Corporation Company Profile

Western Asset Mortgage Capital Corporation is a real estate investment trust. The Company is focused on investing in, financing and managing a diversified portfolio of real estate-related securities, whole-loans and other financial assets. The Company’s portfolio includes Agency residential mortgage-backed securities (RMBS), including Mortgage pass-through certificates, Agency derivatives, Agency Interest-Only Strips and Agency collateralized mortgage obligations (CMOs); Non-Agency RMBS, and Agency commercial mortgage-backed securities (CMBS), Non-Agency CMBS, Non United States CMBS and asset-backed securities (ABS), as well as Residential and Commercial Whole-Loans. The Company may utilize to-be-announced forward contracts (TBAs), in order to invest in Agency RMBS. The Company’s manager is Western Asset Management Company.

Ares Commercial Real Estate Corporation Company Profile

Ares Commercial Real Estate Corporation is a specialty finance company. The Company is primarily engaged in originating and investing in commercial real estate (CRE) loans and related investments. The Company operates through principal lending segment. Its target investments include senior mortgage loans, subordinated debt, preferred equity, mezzanine loans and other CRE investment opportunities, including commercial mortgage-backed securities. These investments are generally held for investment and are secured, directly or indirectly, by office, multifamily, retail, industrial, lodging, senior-living, self-storage and other commercial real estate properties, or by ownership interests therein. Through the Company’s manager, Ares Commercial Real Estate Management LLC, it has investment professionals located across the United States and Europe who directly source loan opportunities for the Company with owners, operators and sponsors of CRE properties.

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