Erie Indemnity (NASDAQ:ERIE) versus Alleghany Corporation (Y) Critical Contrast

Alleghany Corporation (NYSE: Y) and Erie Indemnity (NASDAQ:ERIE) are both mid-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their valuation, analyst recommendations, profitability, risk, earnings, dividends and institutional ownership.

Dividends

Erie Indemnity pays an annual dividend of $3.13 per share and has a dividend yield of 2.5%. Alleghany Corporation does not pay a dividend. Erie Indemnity pays out 78.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Alleghany Corporation has increased its dividend for 21 consecutive years.

Analyst Ratings

This is a breakdown of current recommendations for Alleghany Corporation and Erie Indemnity, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Alleghany Corporation 0 1 0 0 2.00
Erie Indemnity 0 0 0 0 N/A

Risk and Volatility

Alleghany Corporation has a beta of 0.92, suggesting that its share price is 8% less volatile than the S&P 500. Comparatively, Erie Indemnity has a beta of 0.43, suggesting that its share price is 57% less volatile than the S&P 500.

Profitability

This table compares Alleghany Corporation and Erie Indemnity’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Alleghany Corporation 7.74% 5.70% 1.93%
Erie Indemnity 12.73% 25.11% 13.76%

Insider and Institutional Ownership

81.7% of Alleghany Corporation shares are held by institutional investors. Comparatively, 30.9% of Erie Indemnity shares are held by institutional investors. 4.0% of Alleghany Corporation shares are held by insiders. Comparatively, 46.8% of Erie Indemnity shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Earnings & Valuation

This table compares Alleghany Corporation and Erie Indemnity’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Alleghany Corporation $6.16 billion 1.48 $888.24 million $30.86 19.13
Erie Indemnity $1.65 billion 3.92 $303.02 million $3.99 31.00

Alleghany Corporation has higher revenue and earnings than Erie Indemnity. Alleghany Corporation is trading at a lower price-to-earnings ratio than Erie Indemnity, indicating that it is currently the more affordable of the two stocks.

About Alleghany Corporation

Alleghany Corporation is an insurance holding company. The Company, through its subsidiary Alleghany Insurance Holdings LLC (AIHL) and its subsidiaries, is engaged in the property and casualty insurance business. AIHL’s insurance operations are conducted by its subsidiaries RSUI Group, Inc. (RSUI), CapSpecialty, Inc. (CapSpecialty) and Pacific Compensation Corporation (PacificComp). Its segments include reinsurance and insurance. Its reinsurance segment consists of property and casualty reinsurance operations conducted by Transatlantic Holdings, Inc. reinsurance operating subsidiaries. Its insurance segment consists of property and casualty insurance operations conducted by AIHL through its insurance operating subsidiaries RSUI, CapSpecialty and PacificComp. AIHL Re LLC, which is a captive reinsurance company, provides reinsurance to its insurance operating subsidiaries and affiliates.

About Erie Indemnity

Erie Indemnity Company is a management company. The Company serves as the attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange (Exchange). The Exchange is a reciprocal insurer that writes property and casualty insurance. The Company’s function is to perform certain services for the Exchange relating to the sales, underwriting and issuance of policies on behalf of the Exchange. The sales related services the Company provides include agent compensation, and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written, as well as additional commissions and bonuses to agents. The underwriting services the Company provides include underwriting and policy processing expenses. It provides information technology services that supports various functions. The remaining services the Company provides include customer service and administrative costs.

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