Analyzing Franklin Financial Services (NASDAQ:FRAF) and Arrow Financial (NASDAQ:AROW)

Arrow Financial (NASDAQ:AROW) and Franklin Financial Services (NASDAQ:FRAF) are both small-cap finance companies, but which is the better stock? We will contrast the two businesses based on the strength of their risk, analyst recommendations, profitability, institutional ownership, earnings, valuation and dividends.

Risk & Volatility

Arrow Financial has a beta of 0.82, indicating that its share price is 18% less volatile than the S&P 500. Comparatively, Franklin Financial Services has a beta of -0.1, indicating that its share price is 110% less volatile than the S&P 500.

Dividends

Arrow Financial pays an annual dividend of $1.16 per share and has a dividend yield of 3.5%. Franklin Financial Services pays an annual dividend of $1.32 per share and has a dividend yield of 2.3%. Arrow Financial pays out 56.0% of its earnings in the form of a dividend. Franklin Financial Services pays out 37.7% 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 raised its dividend for 7 consecutive years and Franklin Financial Services has raised its dividend for 1 consecutive years. Arrow Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Arrow Financial and Franklin Financial Services, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Arrow Financial	0	2	1	0	2.33
Franklin Financial Services	0	0	1	0	3.00

Arrow Financial presently has a consensus target price of $30.75, suggesting a potential downside of 6.62%. Given Arrow Financial’s higher possible upside, equities research analysts clearly believe Arrow Financial is more favorable than Franklin Financial Services.

Earnings and Valuation

This table compares Arrow Financial and Franklin Financial Services”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Arrow Financial	$223.07 million	2.43	$29.71 million	$2.07	15.91
Franklin Financial Services	$79.53 million	3.18	$11.10 million	$3.50	16.15

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

Institutional & Insider Ownership

46.7% of Arrow Financial shares are owned by institutional investors. Comparatively, 24.8% of Franklin Financial Services shares are owned by institutional investors. 3.3% of Arrow Financial shares are owned by insiders. Comparatively, 6.9% of Franklin Financial Services shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Profitability

This table compares Arrow Financial and Franklin Financial Services’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Arrow Financial	14.65%	9.46%	0.87%
Franklin Financial Services	12.34%	10.11%	0.69%

Summary

Arrow Financial beats Franklin Financial Services on 9 of the 16 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 Franklin Financial Services

Franklin Financial Services Corporation operates as the bank holding company for Farmers and Merchants Trust Company of Chambersburg that provides commercial, retail banking, and trust services to businesses, individuals, governmental entities, and non-profit organizations in Pennsylvania. It offers various deposit products, including checking, savings, money management, and time deposit accounts, as well as demand deposits. The company also provides commercial real estate, construction and land development, commercial and industrial, and residential mortgage loans, as well as installment and revolving loans; consumer loans comprising unsecured personal lines of credit and installment loans; and secured and unsecured commercial and industrial loans, including accounts receivable and inventory financing, and commercial equipment financing. In addition, it offers various investment and trust services comprising estate planning and administration, corporate and personal trust fund management, pension, and profit sharing and other employee benefit funds management services, and custodial services, as well as non-trust related investment services; sells mutual funds, annuities, and insurance products; and offers safe deposit, pension, and fiduciary services. Further, the company engages in non-bank investment activities, such as venture capital investments. The company was founded in 1906 and is headquartered in Chambersburg, Pennsylvania.