United Fire Group (NASDAQ: UFCS) and Federated National Holding (NASDAQ:FNHC) are both small-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their analyst recommendations, risk, valuation, dividends, earnings, profitability and institutional ownership.

Volatility and Risk

United Fire Group has a beta of 0.77, suggesting that its share price is 23% less volatile than the S&P 500. Comparatively, Federated National Holding has a beta of 1.6, suggesting that its share price is 60% more volatile than the S&P 500.

Profitability

This table compares United Fire Group and Federated National Holding’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
United Fire Group 4.07% 4.33% 1.01%
Federated National Holding -0.73% -1.07% -0.33%

Dividends

United Fire Group pays an annual dividend of $1.12 per share and has a dividend yield of 2.6%. Federated National Holding pays an annual dividend of $0.32 per share and has a dividend yield of 2.3%. United Fire Group pays out 61.2% of its earnings in the form of a dividend. Federated National Holding pays out -168.4% 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.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for United Fire Group and Federated National Holding, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
United Fire Group 0 2 0 0 2.00
Federated National Holding 0 2 0 0 2.00

United Fire Group presently has a consensus price target of $46.00, suggesting a potential upside of 8.39%. Given United Fire Group’s higher possible upside, equities analysts clearly believe United Fire Group is more favorable than Federated National Holding.

Valuation and Earnings

This table compares United Fire Group and Federated National Holding’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
United Fire Group $1.16 billion 0.92 $59.36 million $1.83 23.19
Federated National Holding $366.50 million 0.50 $870,000.00 ($0.19) -73.79

United Fire Group has higher revenue and earnings than Federated National Holding. Federated National Holding is trading at a lower price-to-earnings ratio than United Fire Group, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

58.2% of United Fire Group shares are owned by institutional investors. Comparatively, 62.3% of Federated National Holding shares are owned by institutional investors. 5.8% of United Fire Group shares are owned by insiders. Comparatively, 10.8% of Federated National Holding shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Summary

United Fire Group beats Federated National Holding on 9 of the 13 factors compared between the two stocks.

United Fire Group Company Profile

United Fire Group, Inc., formerly United Fire & Casualty Company, is engaged in the business of writing property and casualty insurance and life insurance and selling annuities. The Company operates in two segments: property and casualty insurance, and life insurance. The Company’s property and casualty insurance segment consists of commercial lines insurance, including surety bonds, personal lines insurance and assumed insurance. Its life insurance segment consists of deferred and immediate annuities, universal life insurance products and traditional life insurance products. Its life insurance segment consists solely of the operations of United Life Insurance Company. On February 1, 2012, the Company completed a holding company reorganization of United Fire Group, Inc., United Fire & Casualty Company and UFC MergeCo, Inc. On March 28, 2011, the Company acquired Mercer Insurance Group, Inc. (Mercer Insurance Group).

Federated National Holding Company Profile

Federated National Holding Company (FNHC) is an insurance holding company that controls all steps in the insurance underwriting, distribution and claims processes through its subsidiaries and its contractual relationships with its independent agents and general agents. The Company is authorized to underwrite homeowners’ multi-peril (homeowners), commercial general liability, federal flood, personal auto and various other lines of insurance in Florida and various other states. The Company markets, distributes and services its own and third-party insurers’ products and its other services through a network of independent agents. The Company’s insurance lines of business include Homeowners’ Property and Casualty Insurance, Commercial General Liability, Personal Automobile and Flood. FNIC and MNIC underwrite homeowners’ insurance in Florida, and FNIC underwrites insurance in Alabama, Louisiana and South Carolina. Alabama and Louisiana.

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