Cathay General Bancorp (NASDAQ:CATY) versus Arrow Financial (NASDAQ:AROW) Critical Review

Arrow Financial (NASDAQ:AROW) and Cathay General Bancorp (NASDAQ:CATY) are both finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their profitability, dividends, earnings, risk, valuation, analyst recommendations and institutional ownership.

Institutional & Insider Ownership

46.7% of Arrow Financial shares are owned by institutional investors. Comparatively, 75.0% of Cathay General Bancorp shares are owned by institutional investors. 3.5% of Arrow Financial shares are owned by insiders. Comparatively, 4.5% of Cathay General Bancorp shares are owned by 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.

Dividends

Arrow Financial pays an annual dividend of $1.20 per share and has a dividend yield of 3.2%. Cathay General Bancorp pays an annual dividend of $1.52 per share and has a dividend yield of 2.5%. Arrow Financial pays out 38.7% of its earnings in the form of a dividend. Cathay General Bancorp pays out 29.7% 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. Arrow Financial has increased its dividend for 7 consecutive years. Arrow Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings & Valuation

This table compares Arrow Financial and Cathay General Bancorp”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Arrow Financial	$242.58 million	2.85	$43.95 million	$3.10	12.02
Cathay General Bancorp	$1.38 billion	2.94	$315.12 million	$5.12	11.90

Cathay General Bancorp has higher revenue and earnings than Arrow Financial. Cathay General Bancorp is trading at a lower price-to-earnings ratio than Arrow Financial, indicating that it is currently the more affordable of the two stocks.

Risk & Volatility

Arrow Financial has a beta of 0.75, indicating that its stock price is 25% less volatile than the S&P 500. Comparatively, Cathay General Bancorp has a beta of 0.85, indicating that its stock price is 15% less volatile than the S&P 500.

Profitability

This table compares Arrow Financial and Cathay General Bancorp’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Arrow Financial	20.56%	12.13%	1.17%
Cathay General Bancorp	24.66%	11.71%	1.43%

Analyst Recommendations

This is a summary of current ratings and price targets for Arrow Financial and Cathay General Bancorp, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Arrow Financial	0	3	3	0	2.50
Cathay General Bancorp	1	4	1	0	2.00

Arrow Financial presently has a consensus price target of $41.62, indicating a potential upside of 11.67%. Cathay General Bancorp has a consensus price target of $62.25, indicating a potential upside of 2.17%. Given Arrow Financial’s stronger consensus rating and higher possible upside, analysts clearly believe Arrow Financial is more favorable than Cathay General Bancorp.

Summary

Cathay General Bancorp beats Arrow Financial on 10 of the 17 factors compared between the two stocks.

About Arrow Financial

Arrow Financial Corporation, a bank holding company, provides commercial and consumer banking, and financial products and services. The company’s deposit products include demand deposits, interest-bearing checking accounts, savings deposits, time deposits, and other time deposits. Its lending activities comprise commercial loans, such as term loans, time notes, and lines of credit; and commercial real estate loans to finance real estate purchases, refinancing, expansions, and enhancement to commercial properties, as well as commercial construction and land development loans to finance projects. The company’s lending activities also include consumer installment loans to finance personal expenditures, personal lines of credit, overdraft protection, and automobile loans; and residential real estate loans, fixed home equity loans, and home equity lines of credit for consumers to finance home improvements, debt consolidation, education, and other uses. In addition, it maintains an indirect lending program. Further, the company provides retirement planning, trust, and estate administration services for individuals, as well as pension, profit-sharing, and employee benefit plan administration services for corporations. Additionally, it offers insurance agency services comprising group health care policies and life insurance, and property and casualty insurance products; and investment advisory services to its proprietary mutual funds, as well as holds a real estate investment trust. It operates in the northeastern region of New York State in Warren, Washington, Saratoga, Essex, Clinton, Rensselaer, Albany, and Schenectady counties. Arrow Financial Corporation was founded in 1851 and is headquartered in Glens Falls, New York.

About Cathay General Bancorp

Cathay General Bancorp operates as the holding company for Cathay Bank that offers various commercial banking products and services to individuals, professionals, and small to medium-sized businesses in the United States. The company offers various deposit products, including passbook accounts, checking accounts, money market deposit accounts, certificates of deposit, individual retirement accounts, and public funds deposits. It also provides loan products, such as commercial mortgage loans, commercial loans, small business administration loans, residential mortgage loans, real estate construction loans, and home equity lines of credit, as well as installment loans to individuals for household, and other consumer expenditures. In addition, the company offers trade financing, letter of credit, wire transfer, forward currency spot and forward contract, safe deposit, collection, automatic teller machine, Internet banking, investment, and other customary bank services, as well as securities and insurance products. Cathay General Bancorp was founded in 1962 and is headquartered in Los Angeles, California.