Head-To-Head Review: Farmers & Merchants Bancorp (FMAO) and OceanFirst Financial (OCFC)

Farmers & Merchants Bancorp (NASDAQ: FMAO) and OceanFirst Financial (NASDAQ:OCFC) are both small-cap finance companies, but which is the superior stock? We will compare the two businesses based on the strength of their profitability, risk, institutional ownership, valuation, earnings, analyst recommendations and dividends.

Insider and Institutional Ownership

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14.3% of Farmers & Merchants Bancorp shares are held by institutional investors. Comparatively, 51.1% of OceanFirst Financial shares are held by institutional investors. 4.5% of Farmers & Merchants Bancorp shares are held by company insiders. Comparatively, 7.0% of OceanFirst Financial shares are held 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 Farmers & Merchants Bancorp and OceanFirst Financial’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Farmers & Merchants Bancorp 25.55% 10.28% 1.25%
OceanFirst Financial 19.67% 9.48% 1.06%

Dividends

Farmers & Merchants Bancorp pays an annual dividend of $0.52 per share and has a dividend yield of 1.3%. OceanFirst Financial pays an annual dividend of $0.60 per share and has a dividend yield of 2.3%. Farmers & Merchants Bancorp pays out 37.7% of its earnings in the form of a dividend. OceanFirst Financial pays out 35.3% 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. OceanFirst Financial is clearly the better dividend stock, given its higher yield and lower payout ratio.

Earnings & Valuation

This table compares Farmers & Merchants Bancorp and OceanFirst Financial’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Farmers & Merchants Bancorp $51.98 million 7.25 $12.72 million $1.38 29.47
OceanFirst Financial $215.90 million 5.91 $42.47 million $1.70 15.60

OceanFirst Financial has higher revenue and earnings than Farmers & Merchants Bancorp. OceanFirst Financial is trading at a lower price-to-earnings ratio than Farmers & Merchants Bancorp, indicating that it is currently the more affordable of the two stocks.

Risk and Volatility

Farmers & Merchants Bancorp has a beta of 0.07, indicating that its share price is 93% less volatile than the S&P 500. Comparatively, OceanFirst Financial has a beta of 0.53, indicating that its share price is 47% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent ratings and price targets for Farmers & Merchants Bancorp and OceanFirst Financial, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Farmers & Merchants Bancorp 0 1 0 0 2.00
OceanFirst Financial 0 0 5 0 3.00

OceanFirst Financial has a consensus price target of $32.20, indicating a potential upside of 21.42%. Given OceanFirst Financial’s stronger consensus rating and higher possible upside, analysts plainly believe OceanFirst Financial is more favorable than Farmers & Merchants Bancorp.

Summary

OceanFirst Financial beats Farmers & Merchants Bancorp on 11 of the 16 factors compared between the two stocks.

About Farmers & Merchants Bancorp

Farmers & Merchants Bancorp, Inc. operates as the bank holding company for The Farmers & Merchants State Bank that provides commercial banking, retail banking, and other financial products and services to individuals and small businesses in northwest Ohio and northeast Indiana. The company offers checking accounts; savings and time deposits, including certificates of deposits; and custodial services for individual retirement accounts and health savings accounts. It also provides commercial, agricultural, and residential mortgage, as well as consumer and credit card lending products; loans for farm land, farm equipment, and livestock; operating loans for seeds, fertilizers, and feeds; home improvements loans; and loans for autos, trucks, recreational vehicles, and motorcycles. In addition, the company offers commercial real estate loans, such as operation lines of credit and machinery purchase loans; and agricultural and consumer real estate, commercial and industrial, agricultural, and consumer loans, as well as industrial development bonds. Further, it provides automated teller machine services; and online banking, remote deposit capture or electronic deposit processing, merchant credit card, and mobile banking services. As of February 8, 2018, the company operated through 25 offices. Farmers & Merchants Bancorp, Inc. was founded in 1897 and is based in Archbold, Ohio.

About OceanFirst Financial

OceanFirst Financial Corp. operates as the holding company for OceanFirst Bank N.A. that provides a range of community banking services. The company offers various deposit products to retail, government, and business customers, including money market accounts, savings accounts, interest-bearing checking accounts, non-interest-bearing accounts, and time deposits. It also provides commercial real estate, multi-family mortgage, and land loans; fixed-rate and adjustable-rate mortgage loans that are secured by one-to-four family residences; consumer loans, such as home equity loans and lines of credit, overdraft line of credit, loans on savings accounts, and other consumer loans; and commercial and industrial loans, and lines of credit. In addition, the company invests in mortgage-backed securities, securities issued by the U.S. Government and agencies, corporate securities, and other investments. Further, it offers bankcard and wealth management services; and sells alternative investment products and life insurance products. The company operates through an administrative/branch office located in Toms River, New Jersey; and 45 additional branch offices and 3 deposit production facilities in central and southern New Jersey, as well as operates a wealth management office in Ocean County, and commercial loan production offices in the Philadelphia area and Atlantic, Cape May, and Mercer Counties in New Jersey. OceanFirst Financial Corp. was founded in 1902 and is based in Toms River, New Jersey.

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