Critical Analysis: Ellington Financial (NYSE:EFC) & Franklin BSP Realty Trust (NYSE:FBRT)

Franklin BSP Realty Trust (NYSE:FBRT) and Ellington Financial (NYSE:EFC) are both small-cap finance companies, but which is the better stock? We will compare the two companies based on the strength of their analyst recommendations, institutional ownership, valuation, profitability, dividends, risk and earnings.

Valuation and Earnings

This table compares Franklin BSP Realty Trust and Ellington Financial”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Franklin BSP Realty Trust	$270.07 million	2.65	$82.27 million	$0.64	14.51
Ellington Financial	$189.96 million	8.68	$146.87 million	$1.23	10.76

Ellington Financial has lower revenue, but higher earnings than Franklin BSP Realty Trust. Ellington Financial is trading at a lower price-to-earnings ratio than Franklin BSP Realty Trust, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

59.9% of Franklin BSP Realty Trust shares are owned by institutional investors. Comparatively, 55.6% of Ellington Financial shares are owned by institutional investors. 1.4% of Franklin BSP Realty Trust shares are owned by insiders. Comparatively, 3.2% of Ellington Financial shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Profitability

This table compares Franklin BSP Realty Trust and Ellington Financial’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Franklin BSP Realty Trust	24.26%	6.46%	1.34%
Ellington Financial	53.10%	14.62%	1.17%

Risk & Volatility

Franklin BSP Realty Trust has a beta of 0.94, meaning that its stock price is 6% less volatile than the S&P 500. Comparatively, Ellington Financial has a beta of 0.94, meaning that its stock price is 6% less volatile than the S&P 500.

Analyst Ratings

This is a breakdown of current ratings and target prices for Franklin BSP Realty Trust and Ellington Financial, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Franklin BSP Realty Trust	0	2	3	0	2.60
Ellington Financial	0	3	3	0	2.50

Franklin BSP Realty Trust currently has a consensus price target of $11.50, suggesting a potential upside of 23.86%. Ellington Financial has a consensus price target of $14.56, suggesting a potential upside of 10.03%. Given Franklin BSP Realty Trust’s stronger consensus rating and higher probable upside, research analysts plainly believe Franklin BSP Realty Trust is more favorable than Ellington Financial.

Dividends

Franklin BSP Realty Trust pays an annual dividend of $0.80 per share and has a dividend yield of 8.6%. Ellington Financial pays an annual dividend of $1.56 per share and has a dividend yield of 11.8%. Franklin BSP Realty Trust pays out 125.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Ellington Financial pays out 126.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

About Franklin BSP Realty Trust

Benefit Street Partners operates as a self-managed real estate investment trust (REIT). BSP earns income from investing in a leveraged portfolio of residential mortgage pass-through securities consisting almost exclusively of adjustable-rate mortgage (ARM) securities issued and guaranteed by government-sponsored enterprises, either Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the government-sponsored enterprises (GSEs)), or by an agency of the federal government, Government National Mortgage Association (Ginnie Mae). BSP’s investment strategy focuses on managing a portfolio of residential mortgage investments consisting almost exclusively of ARM Agency Securities. As of December 31, 2012, the Company’s securities consisted of Agency Securities classified as available-for-sale and Residential mortgage securities classified as held-to-maturity.

About Ellington Financial

Ellington Financial Inc., through its subsidiary, Ellington Financial Operating Partnership LLC, acquires and manages mortgage-related, consumer-related, corporate-related, and other financial assets in the United States. The company acquires and manages residential mortgage-backed securities (RMBS) backed by prime jumbo, Alt-A, manufactured housing, and subprime mortgage; RMBS for which the principal and interest payments are guaranteed by the U.S. government agency or the U.S. government-sponsored entity; residential mortgage loans; commercial mortgage-backed securities; and commercial mortgage loans and other commercial real estate debt. It also provides collateralized loan obligations; mortgage-related and non-mortgage-related derivatives; corporate debt and equity securities; corporate loans; and other strategic investments; and consumer loans and asset-backed securities backed by consumer and commercial assets. The company qualifies as a real estate investment trust (REIT) for federal income tax purposes. As a REIT, it intends to distribute at least 90% of its taxable income as dividends to shareholders. Ellington Financial LLC was incorporated in 2007 and is headquartered in Old Greenwich, Connecticut.