Prosperity Bancshares (PB) & Live Oak Bancshares (LOB) Critical Review

Prosperity Bancshares (NYSE: PB) and Live Oak Bancshares (NASDAQ:LOB) are both financials companies, but which is the better business? We will contrast the two businesses based on the strength of their earnings, risk, dividends, institutional ownership, profitability, valuation and analyst recommendations.

Profitability

This table compares Prosperity Bancshares and Live Oak Bancshares’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Prosperity Bancshares 34.79% 7.38% 1.23%
Live Oak Bancshares 17.68% 13.60% 1.72%

Insider and Institutional Ownership

76.8% of Prosperity Bancshares shares are owned by institutional investors. Comparatively, 40.9% of Live Oak Bancshares shares are owned by institutional investors. 4.9% of Prosperity Bancshares shares are owned by insiders. Comparatively, 30.1% of Live Oak Bancshares shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Valuation & Earnings

This table compares Prosperity Bancshares and Live Oak Bancshares’ gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Prosperity Bancshares $794.20 million 6.50 $274.46 million $3.94 18.87
Live Oak Bancshares $150.81 million 6.57 $13.77 million $0.93 26.72

Prosperity Bancshares has higher revenue and earnings than Live Oak Bancshares. Prosperity Bancshares is trading at a lower price-to-earnings ratio than Live Oak Bancshares, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a summary of recent ratings and price targets for Prosperity Bancshares and Live Oak Bancshares, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Prosperity Bancshares 2 6 2 0 2.00
Live Oak Bancshares 0 1 2 0 2.67

Prosperity Bancshares currently has a consensus price target of $72.70, indicating a potential downside of 2.22%. Live Oak Bancshares has a consensus price target of $25.67, indicating a potential upside of 3.29%. Given Live Oak Bancshares’ stronger consensus rating and higher probable upside, analysts plainly believe Live Oak Bancshares is more favorable than Prosperity Bancshares.

Dividends

Prosperity Bancshares pays an annual dividend of $1.44 per share and has a dividend yield of 1.9%. Live Oak Bancshares pays an annual dividend of $0.12 per share and has a dividend yield of 0.5%. Prosperity Bancshares pays out 36.5% of its earnings in the form of a dividend. Live Oak Bancshares pays out 12.9% 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. Prosperity Bancshares has increased its dividend for 14 consecutive years. Prosperity Bancshares is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Live Oak Bancshares beats Prosperity Bancshares on 8 of the 15 factors compared between the two stocks.

Prosperity Bancshares Company Profile

Prosperity Bancshares, Inc. is a financial holding company, which operates through its bank subsidiary, Prosperity Bank (the Bank). The Bank provides a range of financial products and services to small and medium-sized businesses and consumers. The Company, through the Bank, offers a range of loan and deposit products to its customers. At December 31, 2016, the Bank maintained approximately 598,400 separate deposit accounts including certificates of deposit and 53,600 separate loan accounts. It offered commercial real estate (including multifamily residential) and one- to four-family residential loans, as of December 31, 2016. As of December 31, 2016, the Bank operated 245 full service banking locations; 65 in the Houston area; 29 in the South Texas area; 36 in the Dallas/Fort Worth area; 22 in the East Texas area; 29 in the Central Texas area; 34 in the West Texas area; 16 in the Bryan/College Station area, six in the Central Oklahoma area and eight in the Tulsa, Oklahoma area.

Live Oak Bancshares Company Profile

Live Oak Bancshares, Inc. is a bank holding company. The Company conducts business operations primarily through its commercial bank subsidiary, Live Oak Banking Company (the Bank). The Bank specializes in providing lending services to small businesses nationwide in targeted industries. The loans originated by the Bank are guaranteed by the small business administration (SBA). The Company’s loan portfolio includes commercial and industrial loans; construction and development loans; commercial real estate, and commercial land. The Company’s investment securities include the United States Government agencies, residential mortgage-backed securities and mutual fund. The Company’s deposits include non-interest-bearing deposits and interest-bearing deposits, such as interest-bearing checking, money market and time deposits.

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