Preferred Bank (NASDAQ:PFBC) and East West Bancorp (NASDAQ:EWBC) Critical Contrast

Preferred Bank (NASDAQ:PFBC) and East West Bancorp (NASDAQ:EWBC) are both finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their institutional ownership, dividends, earnings, risk, valuation, profitability and analyst recommendations.

Analyst Recommendations

This is a breakdown of current ratings for Preferred Bank and East West Bancorp, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Preferred Bank	0	2	2	1	2.80
East West Bancorp	1	5	10	1	2.65

Preferred Bank currently has a consensus target price of $104.67, indicating a potential upside of 14.38%. East West Bancorp has a consensus target price of $124.08, indicating a potential upside of 23.35%. Given East West Bancorp’s higher possible upside, analysts clearly believe East West Bancorp is more favorable than Preferred Bank.

Risk and Volatility

Preferred Bank has a beta of 0.71, indicating that its stock price is 29% less volatile than the S&P 500. Comparatively, East West Bancorp has a beta of 0.93, indicating that its stock price is 7% less volatile than the S&P 500.

Valuation and Earnings

This table compares Preferred Bank and East West Bancorp”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Preferred Bank	$280.18 million	4.71	$130.66 million	$9.84	9.30
East West Bancorp	$2.81 billion	4.93	$1.17 billion	$9.07	11.09

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

Dividends

Preferred Bank pays an annual dividend of $3.00 per share and has a dividend yield of 3.3%. East West Bancorp pays an annual dividend of $2.40 per share and has a dividend yield of 2.4%. Preferred Bank pays out 30.5% of its earnings in the form of a dividend. East West Bancorp pays out 26.5% 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. Preferred Bank has raised its dividend for 5 consecutive years and East West Bancorp has raised its dividend for 8 consecutive years.

Profitability

This table compares Preferred Bank and East West Bancorp’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Preferred Bank	25.67%	16.91%	1.82%
East West Bancorp	27.16%	15.55%	1.63%

Institutional and Insider Ownership

72.8% of Preferred Bank shares are held by institutional investors. Comparatively, 89.5% of East West Bancorp shares are held by institutional investors. 1.0% of East West Bancorp shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.

Summary

East West Bancorp beats Preferred Bank on 12 of the 17 factors compared between the two stocks.

About Preferred Bank

Preferred Bank provides various commercial banking products and services to small and mid-sized businesses and their owners, entrepreneurs, real estate developers and investors, professionals, and high net worth individuals. The company accepts checking, savings, and money market deposit accounts; fixed-rate and fixed maturity retail, and non-retail certificates of deposit; and individual retirement accounts. It also provides real estate mortgage loans that are secured by retail, industrial, office, special purpose, and residential single and multi-family properties; real estate construction loans; commercial loans comprising lines of credit for working capital, term loans for capital expenditures, and commercial and stand-by letters of credit; and small business administration loans. In addition, the company offers trade finance services, including commercial and export letters of credit, import lines of credit, documentary collections, international wire transfers, acceptances/trust receipt financing products, export financing, and bills purchase programs. Further, it provides cash management services; and internet, mobile, and tablet banking services. The company operates through full-service branch offices in the California counties of Los Angeles, Orange and San Francisco; Flushing, New York; Houston suburb of Sugar Land, Texas; and a satellite office in Manhattan, New York. The company was incorporated in 1991 and is headquartered in Los Angeles, California.

About East West Bancorp

East West Bancorp, Inc. operates as the bank holding company for East West Bank that provides a range of personal and commercial banking services to businesses and individuals in the United States. The company operates through three segments: Consumer and Business Banking, Commercial Banking, and Other. It accepts various deposit products, such as personal and business checking and savings accounts, money market, and time deposits. The company’s loan products include mortgage and home equity, commercial and residential real estate, working capital lines of credit, construction finance, trade finance, letters of credit, commercial business, affordable housing loans, asset-based lending, asset-backed finance, project finance, loan syndication, and equipment financing, as well as financing services for clients to facilitate their business transactions between the United States and Asia. It also provides various wealth management, treasury management, foreign exchange, and interest rate and commodity risk hedging services; and mobile and online banking services. The company was founded in 1973 and is headquartered in Pasadena, California.