Reviewing SmartFinancial (NASDAQ:SMBK) and First Merchants (NASDAQ:FRME)

First Merchants (NASDAQ:FRME) and SmartFinancial (NASDAQ:SMBK) are both finance companies, but which is the superior stock? We will compare the two companies based on the strength of their earnings, institutional ownership, risk, valuation, dividends, profitability and analyst recommendations.

Dividends

First Merchants pays an annual dividend of $1.48 per share and has a dividend yield of 3.6%. SmartFinancial pays an annual dividend of $0.36 per share and has a dividend yield of 0.7%. First Merchants pays out 47.4% of its earnings in the form of a dividend. SmartFinancial pays out 10.6% 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. First Merchants has raised its dividend for 13 consecutive years and SmartFinancial has raised its dividend for 3 consecutive years. First Merchants is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for First Merchants and SmartFinancial, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First Merchants	0	3	3	0	2.50
SmartFinancial	0	4	2	1	2.57

First Merchants presently has a consensus target price of $49.00, indicating a potential upside of 19.89%. SmartFinancial has a consensus target price of $50.42, indicating a potential downside of 2.68%. Given First Merchants’ higher possible upside, analysts plainly believe First Merchants is more favorable than SmartFinancial.

Risk and Volatility

First Merchants has a beta of 0.84, indicating that its stock price is 16% less volatile than the S&P 500. Comparatively, SmartFinancial has a beta of 0.68, indicating that its stock price is 32% less volatile than the S&P 500.

Institutional and Insider Ownership

73.9% of First Merchants shares are owned by institutional investors. Comparatively, 58.8% of SmartFinancial shares are owned by institutional investors. 1.8% of First Merchants shares are owned by company insiders. Comparatively, 6.9% of SmartFinancial shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Profitability

This table compares First Merchants and SmartFinancial’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
First Merchants	17.05%	8.86%	1.12%
SmartFinancial	12.67%	7.33%	0.71%

Earnings and Valuation

This table compares First Merchants and SmartFinancial”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First Merchants	$1.05 billion	2.44	$226.00 million	$3.12	13.10
SmartFinancial	$210.19 million	4.21	$36.14 million	$3.39	15.28

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

Summary

First Merchants beats SmartFinancial on 11 of the 18 factors compared between the two stocks.

About First Merchants

First Merchants Corporation operates as the financial holding company for First Merchants Bank that provides community banking services. The company offers a range of financial services, including time, savings, and demand deposits; and consumer, commercial, agri-business, public finance, and real estate mortgage loans. It also provides personal and corporate trust; brokerage and private wealth management; and letters of credit, repurchase agreements, and other corporate services. The company operates banking locations in Indiana, Illinois, Ohio, and Michigan counties. It also offers its services through electronic and mobile delivery channels. First Merchants Corporation was founded in 1893 and is headquartered in Muncie, Indiana.

About SmartFinancial

SmartFinancial, Inc. operates as the bank holding company for SmartBank that provides various financial services to individuals and corporate customers in Tennessee, Alabama, and Florida. It operates through Commercial Real Estate, Consumer Real Estate, Construction and Land Development, Commercial and Industrial, Leases, and Consumer and Other segments. The company offers noninterest-bearing and interest-bearing checking, interest-bearing demand, savings, money market, time deposit, individual retirement accounts, as well as certificates of deposit. It also provides commercial and residential real estate, consumer real estate, and construction and land development loans; commercial and financial loans and leases; commercial business and mortgage loans; and direct consumer installment, educational, agriculture, and other revolving credit loans; equipment financing, heavy equipment, semis, and trailers loans and leases to small and mid-size companies; letters of credit; and overdraft facilities. In addition, the company offers wealth management, insurance, mortgage origination, and internet and mobile banking services. SmartFinancial, Inc. is headquartered in Knoxville, Tennessee.