Financial Analysis: Financial Engines (NASDAQ:FNGN) versus Federated Investors (FII)

Financial Engines (NASDAQ: FNGN) and Federated Investors (NYSE:FII) are both mid-cap finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their earnings, profitabiliy, institutional ownership, valuation, dividends, analyst recommendations and risk.

Analyst Recommendations

This is a breakdown of recent ratings for Financial Engines and Federated Investors, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Financial Engines	0	0	4	0	3.00
Federated Investors	2	4	0	0	1.67

Financial Engines currently has a consensus target price of $45.50, indicating a potential upside of 18.03%. Federated Investors has a consensus target price of $23.50, indicating a potential downside of 15.68%. Given Financial Engines’ stronger consensus rating and higher probable upside, analysts plainly believe Financial Engines is more favorable than Federated Investors.

Volatility and Risk

Financial Engines has a beta of 2.22, suggesting that its stock price is 122% more volatile than the S&P 500. Comparatively, Federated Investors has a beta of 1.42, suggesting that its stock price is 42% more volatile than the S&P 500.

Valuation and Earnings

This table compares Financial Engines and Federated Investors’ top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	EBITDA	Earnings Per Share	Price/Earnings Ratio
Financial Engines	$445.97 million	5.43	$79.49 million	$0.58	66.47
Federated Investors	$1.13 billion	2.50	$345.66 million	$2.08	13.40

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

Institutional and Insider Ownership

85.5% of Federated Investors shares are owned by institutional investors. 16.0% of Financial Engines shares are owned by company insiders. Comparatively, 7.1% of Federated Investors shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Profitability

This table compares Financial Engines and Federated Investors’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Financial Engines	8.39%	7.24%	6.55%
Federated Investors	18.91%	33.93%	18.36%

Dividends

Financial Engines pays an annual dividend of $0.28 per share and has a dividend yield of 0.7%. Federated Investors pays an annual dividend of $1.00 per share and has a dividend yield of 3.6%. Financial Engines pays out 48.3% 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. Federated Investors is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Federated Investors beats Financial Engines on 9 of the 16 factors compared between the two stocks.

Financial Engines Company Profile

Financial Engines, Inc. is a provider of independent, technology-enabled financial advisory services, discretionary portfolio management, personalized investment advice, financial and retirement income planning, and financial education and guidance. The Company offers personalized plans for saving, investing, and generating retirement income, as well as by providing assessments of retirement income needs and readiness. The Company’s advice and planning services cover employer-sponsored defined contribution (DC) accounts (401(k), 457, and 403(b) plans), individual retirement account (IRA) accounts, and taxable accounts. For individuals, the Company provides discretionary portfolio management, personalized investment advice, financial and retirement income planning, financial education and guidance. The Company maintains two types of relationships with individuals: DC plan participants in the workplace and Individuals outside the workplace.

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.