Critical Analysis: Home Properties (HME) vs. ARMOUR Residential REIT (ARR)

Home Properties (NYSE: HME) and ARMOUR Residential REIT (NYSE:ARR) are both financials companies, but which is the better investment? We will compare the two businesses based on the strength of their institutional ownership, profitability, analyst recommendations, dividends, valuation, earnings and risk.

Profitability

This table compares Home Properties and ARMOUR Residential REIT’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Home Properties 18.18% 6.60% 2.87%
ARMOUR Residential REIT 114.11% 9.26% 1.31%

Analyst Ratings

This is a summary of recent ratings for Home Properties and ARMOUR Residential REIT, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Home Properties 0 0 0 0 N/A
ARMOUR Residential REIT 0 1 0 0 2.00

ARMOUR Residential REIT has a consensus target price of $24.00, suggesting a potential downside of 9.09%. Given ARMOUR Residential REIT’s higher possible upside, analysts clearly believe ARMOUR Residential REIT is more favorable than Home Properties.

Insider & Institutional Ownership

46.1% of ARMOUR Residential REIT shares are held by institutional investors. 1.2% of ARMOUR Residential REIT shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Valuation & Earnings

This table compares Home Properties and ARMOUR Residential REIT’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Home Properties N/A N/A N/A N/A N/A
ARMOUR Residential REIT $331.03 million 3.29 $313.42 million $7.60 3.47

ARMOUR Residential REIT has higher revenue and earnings than Home Properties.

Dividends

ARMOUR Residential REIT pays an annual dividend of $2.28 per share and has a dividend yield of 8.6%. Home Properties does not pay a dividend. ARMOUR Residential REIT pays out 30.0% of its earnings in the form of a dividend. Home Properties has increased its dividend for 6 consecutive years and ARMOUR Residential REIT has increased its dividend for 2 consecutive years.

Summary

ARMOUR Residential REIT beats Home Properties on 7 of the 10 factors compared between the two stocks.

Home Properties Company Profile

Home Properties, Inc. (Home Properties) is a self-administered and self-managed real estate investment trust (REIT). The Company owns, operates, acquires and repositions apartment communities in suburbs of metropolitan areas, primarily along the East Coast of the United States. The Company conducts its business through Home Properties, L.P. (the Operating Partnership), and a management company, Home Properties Resident Services, Inc. (HPRS). As of December 31, 2014, the Company owned and operated 121 communities with 42,107 apartment units. The Company’s properties are two- and three-story garden style apartment buildings in landscaped settings and brick or other masonry construction. As of December 31, 2014, approximately 26.6%, 24.9%, 14.0%, 8.5% and 8.5% of the Company’s Properties are located in the Washington, D.C., Baltimore, Philadelphia, Long Island and Northern New Jersey markets, respectively.

ARMOUR Residential REIT Company Profile

ARMOUR Residential REIT, Inc. is a real estate investment trust. The Company invests in and manages a leveraged portfolio of mortgage-backed securities (MBS) and mortgage loans. The Company invests in residential mortgage backed securities issued or guaranteed by a United States Government-sponsored enterprise (GSE), such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, or a government agency, such as the Government National Mortgage Association (collectively, Agency Securities). The Company also invests in Interest-Only Securities, which are the interest portions of Agency Securities that are separated and sold individually from the principal portion of the same payment. The Company raises funds for additional funding through equity offerings (including preferred equity), unsecured debt securities and convertible securities (including warrants, preferred equity and debt), among others. It is managed by ARMOUR Capital Management LP.

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