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Federated (FII) Rallies 20% YTD: Is More Upside Left?

Zacks Equity Research

Shares of Federated Investors, Inc. FII appreciated nearly 20%, year to date, as compared with the industry’s growth of approximately 7.5%. Strong fundamentals, driven by steady revenue growth, as well as inorganic expansion strategy seem to be the primary reasons for this impressive stock performance.

Further, this Zacks #2 (Buy) Ranked stock has been witnessing solid estimate revisions. Over the last 60 days, the Zacks Consensus Estimate for 2019 jumped 3.3% to $2.48 and 6.2% to $2.75 for 2020.

Moreover, the stock has a stellar earnings surprise history. Federated surpassed estimates, in three of the four trailing quarters, the average beat being 2.25%.

While the company’s past performance doesn’t guarantee similar trend in the future, we believe the following factors are enough to support a steady price rally for Federated:

Strategic Moves: Acquiring money market assets depicts buoyancy of Federated in the money market business. Increased money market AUM will furnish the company with various new fund offerings that would benefit its clients. Additionally, in the last few years, Federated has inked strategic deals and thereby expanded its operations in the United Kingdom and Chile. Notably, the company continues to seek alliances and acquisitions to expand its business in Europe and the Asia-Pacific region as well as in the United States and rest of the Americas.

Earnings Strength: Federated witnessed historical earnings per share (three-five years) growth of 13.22%. In addition, the company’s long-term (three-five years) estimated EPS growth rate of 7.83% promises rewards for investors over the long run.

Strong Leverage: Federated’s debt/equity ratio is 0.26 compared with the industry average of 0.55, displaying a relatively lower debt burden. It highlights the financial stability of the company even amid unstable economic environment.

Superior Return on Equity (ROE): Federated’s ROE of 27.29%, as compared with the industry average of 13.24%, highlights the company’s commendable position over its peers.

Stock Looks Undervalued: The stock currently has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
Other Key Picks

T. Rowe Price Group, Inc. TROW has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #1 Ranked stock has rallied more than 14% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.

AllianceBernstein Holding L.P. AB has been witnessing upward estimate revisions for the past 60 days. Furthermore, the company’s shares have gained 1.4%, year to date. At present, it holds a Zacks Rank of 2.

Ameriprise Financial, Inc. AMP has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 19.3% year to date. It currently carries a Zacks Rank #2.

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