Contrasting Ares Commercial Real Estate Corporation (ACRE) and MFA Financial (MFA)

Ares Commercial Real Estate Corporation (NYSE: ACRE) and MFA Financial (NYSE:MFA) are both finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their valuation, dividends, earnings, analyst recommendations, profitability, institutional ownership and risk.

Profitability

This table compares Ares Commercial Real Estate Corporation and MFA Financial’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ares Commercial Real Estate Corporation 45.06% 7.07% 2.03%
MFA Financial 61.94% 10.12% 2.58%

Earnings & Valuation

This table compares Ares Commercial Real Estate Corporation and MFA Financial’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Ares Commercial Real Estate Corporation $45.12 million 8.59 $39.98 million $1.40 9.70
MFA Financial $376.15 million 9.11 $309.13 million $0.78 11.09

MFA Financial has higher revenue and earnings than Ares Commercial Real Estate Corporation. Ares Commercial Real Estate Corporation is trading at a lower price-to-earnings ratio than MFA Financial, indicating that it is currently the more affordable of the two stocks.

Dividends

Ares Commercial Real Estate Corporation pays an annual dividend of $1.08 per share and has a dividend yield of 8.0%. MFA Financial pays an annual dividend of $0.80 per share and has a dividend yield of 9.2%. Ares Commercial Real Estate Corporation pays out 77.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. MFA Financial pays out 102.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Analyst Ratings

This is a summary of recent ratings and price targets for Ares Commercial Real Estate Corporation and MFA Financial, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ares Commercial Real Estate Corporation 1 2 3 0 2.33
MFA Financial 0 2 2 0 2.50

Ares Commercial Real Estate Corporation presently has a consensus target price of $14.31, suggesting a potential upside of 5.39%. MFA Financial has a consensus target price of $8.50, suggesting a potential downside of 1.73%. Given Ares Commercial Real Estate Corporation’s higher probable upside, research analysts clearly believe Ares Commercial Real Estate Corporation is more favorable than MFA Financial.

Risk and Volatility

Ares Commercial Real Estate Corporation has a beta of 0.69, indicating that its share price is 31% less volatile than the S&P 500. Comparatively, MFA Financial has a beta of 0.71, indicating that its share price is 29% less volatile than the S&P 500.

Insider and Institutional Ownership

65.2% of Ares Commercial Real Estate Corporation shares are held by institutional investors. Comparatively, 80.1% of MFA Financial shares are held by institutional investors. 1.8% of Ares Commercial Real Estate Corporation shares are held by insiders. Comparatively, 0.9% of MFA Financial shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Summary

MFA Financial beats Ares Commercial Real Estate Corporation on 10 of the 16 factors compared between the two stocks.

About Ares Commercial Real Estate Corporation

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.

About MFA Financial

MFA Financial, Inc. is engaged in the real estate finance business. The Company’s subsidiaries invest in residential mortgage assets, including Non-Agency mortgage-backed securities (MBS), Agency MBS, residential whole loans and credit risk transfer (CRT) securities. The Company’s Non-Agency MBS portfolio primarily consists of Legacy Non-Agency MBS and 3 Year Step-up securities. In addition to Non-Agency MBS investments, the Company invests in re-performing and non-performing residential whole loans through its interests in certain consolidated trusts. The mortgages collateralizing its Agency MBS portfolio are predominantly Hybrids, 15-year fixed-rate mortgages and adjustable-rate mortgages (ARMs).

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