Truist Financial (NYSE:TFC) vs. Mercantile Bank (NASDAQ:MBWM) Critical Review

Mercantile Bank (NASDAQ:MBWM) and Truist Financial (NYSE:TFC) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their risk, valuation, profitability, earnings, analyst recommendations, institutional ownership and dividends.

Analyst Ratings

This is a breakdown of current recommendations for Mercantile Bank and Truist Financial, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Mercantile Bank	0	4	3	0	2.43
Truist Financial	2	8	7	0	2.29

Mercantile Bank presently has a consensus target price of $62.00, indicating a potential upside of 0.42%. Truist Financial has a consensus target price of $55.12, indicating a potential upside of 9.29%. Given Truist Financial’s higher probable upside, analysts plainly believe Truist Financial is more favorable than Mercantile Bank.

Profitability

This table compares Mercantile Bank and Truist Financial’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Mercantile Bank	24.75%	13.66%	1.46%
Truist Financial	19.13%	10.06%	1.09%

Earnings & Valuation

This table compares Mercantile Bank and Truist Financial”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Mercantile Bank	$371.80 million	2.87	$88.75 million	$5.68	10.87
Truist Financial	$30.44 billion	2.02	$5.31 billion	$4.36	11.57

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

Dividends

Mercantile Bank pays an annual dividend of $1.60 per share and has a dividend yield of 2.6%. Truist Financial pays an annual dividend of $2.08 per share and has a dividend yield of 4.1%. Mercantile Bank pays out 28.2% of its earnings in the form of a dividend. Truist Financial pays out 47.7% 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. Mercantile Bank has increased its dividend for 14 consecutive years.

Insider and Institutional Ownership

58.6% of Mercantile Bank shares are owned by institutional investors. Comparatively, 71.3% of Truist Financial shares are owned by institutional investors. 2.5% of Mercantile Bank shares are owned by company insiders. Comparatively, 0.2% of Truist Financial shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Volatility and Risk

Mercantile Bank has a beta of 0.8, suggesting that its share price is 20% less volatile than the S&P 500. Comparatively, Truist Financial has a beta of 0.88, suggesting that its share price is 12% less volatile than the S&P 500.

Summary

Mercantile Bank beats Truist Financial on 9 of the 17 factors compared between the two stocks.

About Mercantile Bank

Mercantile Bank Corporation operates as the bank holding company for Mercantile Bank of Michigan that provides commercial and retail banking services to small- to medium-sized businesses and individuals in the United States. It accepts various deposit products, including checking, savings, and term certificate accounts; time deposits; and certificates of deposit. The company also provides commercial and industrial loans; vacant land, land development, and residential construction loans; owner and non-owner occupied real estate loans; multi-family and residential rental property loans; single-family residential real estate loans; home equity line of credit programs; and consumer loans, such as new and used automobile and boat loans, and credit cards, as well as overdraft protection services; and residential mortgage and instalment loans. In addition, it offers courier services and safe deposit facilities; and insurance products, such as private passenger automobile, homeowners, personal inland marine, boat owners, recreational vehicle, dwelling fire, umbrella policies, small business, and life insurance products. The company was incorporated in 1997 and is headquartered in Grand Rapids, Michigan.

About Truist Financial

Truist Financial Corporation, a financial services company, provides banking and trust services in the Southeastern and Mid-Atlantic United States. The company operates through three segments: Consumer Banking and Wealth, Corporate and Commercial Banking, and Insurance Holdings.Its deposit products include noninterest-bearing checking, interest-bearing checking, savings, and money market deposit accounts, as well as certificates of deposit and individual retirement accounts. The company also provides funding; asset management; automobile lending; credit card lending; consumer finance; home equity and mortgage lending; other direct retail lending; insurance; investment brokerage; mobile/online banking; payment solutions; point-of-sale lending; retail and small business deposit products; small business lending; and wealth management/private banking services. In addition, it offers asset based lending, investment banking and capital market, institutional trust, insurance premium finance, derivatives, commercial lending, international banking, leasing, merchant, commercial deposit and treasury, floor plan, mortgage warehouse lending, real estate lending, and supply chain financing services. Further, the company provides insurance brokerage, retail and wholesale brokerage, securities underwriting and market making, loan syndication, and investment management and advisory services. The company was formerly known as BB&T Corporation and changed its name to Truist Financial Corporation in December 2019. Truist Financial Corporation was founded in 1872 and is headquartered in Charlotte, North Carolina.