Mercantile Bank (MBWM) & South State (SSB) Critical Review

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Mercantile Bank (NASDAQ: SSB) and South State (NASDAQ:SSB) are both finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their analyst recommendations, institutional ownership, dividends, risk, earnings, profitability and valuation.

Risk and Volatility

Mercantile Bank has a beta of 0.64, suggesting that its share price is 36% less volatile than the S&P 500. Comparatively, South State has a beta of 0.94, suggesting that its share price is 6% less volatile than the S&P 500.

Profitability

This table compares Mercantile Bank and South State’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Mercantile Bank 23.91% 9.96% 1.12%
South State 18.27% 8.41% 1.32%

Analyst Ratings

This is a summary of recent ratings and price targets for Mercantile Bank and South State, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Mercantile Bank 0 3 0 0 2.00
South State 0 5 1 0 2.17

Mercantile Bank currently has a consensus target price of $37.50, suggesting a potential upside of 7.63%. South State has a consensus target price of $92.25, suggesting a potential upside of 12.02%. Given South State’s stronger consensus rating and higher possible upside, analysts clearly believe South State is more favorable than Mercantile Bank.

Earnings & Valuation

This table compares Mercantile Bank and South State’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Mercantile Bank $144.54 million 4.00 $31.27 million $1.89 18.43
South State $575.15 million 5.27 $87.55 million $4.85 16.98

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

Insider & Institutional Ownership

54.7% of Mercantile Bank shares are owned by institutional investors. Comparatively, 73.9% of South State shares are owned by institutional investors. 3.2% of Mercantile Bank shares are owned by insiders. Comparatively, 2.0% of South State 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

Mercantile Bank pays an annual dividend of $0.88 per share and has a dividend yield of 2.5%. South State pays an annual dividend of $1.40 per share and has a dividend yield of 1.7%. Mercantile Bank pays out 46.6% of its earnings in the form of a dividend. South State pays out 28.9% 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. Mercantile Bank has raised its dividend for 5 consecutive years and South State has raised its dividend for 3 consecutive years. Mercantile Bank is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

South State beats Mercantile Bank on 11 of the 17 factors compared between the two stocks.

About Mercantile Bank

Mercantile Bank Corporation operates as the bank holding company for Mercantile Bank of Michigan that provides commercial and retail banking services for small- to medium-sized businesses and individuals in the United States. It accepts various deposit products, including checking, savings, and term certificate accounts; time deposits; and certificates of deposit. The company also offers commercial and industrial loans; vacant land, land development, and residential construction loans; owner occupied real estate, non-owner occupied real estate, and multi-family and residential rental property loans; single-family residential real estate loans; home equity line of credit programs; and consumer loans, such as loans for new and used automobiles, boats, and credit cards, as well as overdraft protection services. In addition, it provides courier services and safe deposit facilities; repurchase agreements; and insurance products, such as private passenger automobile, homeowners, personal inland marine, boat owners, recreational vehicle, dwelling fire, umbrella policies, small business, and life insurance products, as well as operates and 49 automated teller machines. As of January 16, 2018, the company operated 49 banking offices. Mercantile Bank Corporation was founded in 1997 and is headquartered in Grand Rapids, Michigan.

About South State

South State Corporation operates as the bank holding company for South State Bank that provides a range of retail and commercial banking services, mortgage lending services, trust and wealth management, and consumer finance loans. The company accepts demand deposits, savings deposits, interest-bearing transaction accounts, certificates of deposit, and other time deposits; and offers lending and credit card, ATM processing, and wealth management and trust services. It serves customers through 181 financial centers in 29 South Carolina counties, 9 North Carolina counties, 19 Georgia counties, and 4 Virginia counties. The company was formerly known as First Financial Holdings, Inc. and changed its name to South State Corporation in July 2013. South State Corporation was founded in 1933 and is headquartered in Columbia, South Carolina.

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