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Here's Why You Should Buy Federated (FHI) Stock Right Now

Zacks Equity Research
·4 mins read

With equity assets of $76.9 billion and 29% year-over-year growth in earnings per share in the second quarter, Federated Hermes, Inc. FHI can be a solid bet now. The company’s diversified asset and product mix, along with the continued acquisition of money-market assets amid volatile markets, is anticipated to yield upbeat results in the upcoming period.

Though Federated’s compliance-related fees keep escalating, given the strictly regulated nature of the investment management business, a sharper focus on restructuring the product line and merging certain funds may make its growth path smoother.

With $628.8 billion in managed assets as of Jun 30, 2020, Federated is one such stock which not only trumped estimates during the June-end quarter, but has also been witnessing upward estimate revisions. This reflects analysts’ optimism about the company’s future prospects. Over the last 30 days, the Zacks Consensus Estimate for 2020 and 2021 earnings moved up 10.8% and 4.7%, respectively.

Additionally, shares of this Zacks Rank #2 (Buy) company have gained 14.6% in the past three months compared with 13.3% growth recorded by the industry.

There are a number of other aspects, which make the stock an attractive investment option.

6 Reasons Why Federated is a Must Buy 

Earnings Strength: Federated witnessed historical earnings per share (three-five years) growth of 11.8%. In addition, the company’s long-term (three-five years) estimated EPS growth rate of 9.92% promises rewards for investors over the long run. Also, it recorded an average earnings surprise of 9.06% over the trailing four quarters.

Revenue Strength: Federated continues to witness top-line improvement. In 2019, the company’s sales recorded a three-year compound annual growth rate (CAGR) of nearly 9.7%.

The company’s projected sales growth (F1/F0) of 6.38% (against the industry average of nil) indicates constant upward momentum in revenues.

Strategic Deals: Under the prevailing pressure for money-market funds, the acquisition of money-market assets displays the company’s buoyancy in the money-market business. Increased money-market AUM will furnish Federated with various new fund offerings, in turn benefiting its clients. Notably, it 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.

Strong Leverage: Federated’s debt/equity ratio is 0.18 compared with the industry average of 0.20, reflecting a relatively lower debt burden. It highlights the company’s financial stability even in an unstable economic environment.

Superior Return on Equity (ROE): Federated’s ROE of 29.16%, as compared with the industry average of 11.91%, highlights the company’s commendable position over its peers.

Stock Looks Undervalued: With respect to the price-to-sales and price-to-earnings (F1) ratios, Federated seems undervalued. It has a P/S ratio of 1.81 and a P/E ratio of 9.20, both of which are below the respective industry average of 1.99 and 10.95.

Also, the stock currently has a Value Score of A. 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 Stocks to Consider

TD Ameritrade Holding Corporation AMTD has been witnessing upward estimate revisions for the past 30 days. Moreover, this Zacks #1 Ranked stock has rallied more than 9% in the past three months. You can seethe complete list of today’s Zacks #1 Rank stocks here.

E*TRADE Financial Corporation ETFC has been witnessing upward estimate revisions for the past 30 days. Further, the company’s shares have gained 28% in the past three months. At present, it carries a Zacks Rank of 2.

Artisan Partners Asset Management Inc. APAM has been witnessing upward estimate revisions for the past 30 days. Additionally, the stock has jumped 34.8% in three months’ time. It currently sports a Zacks Rank #1.

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ETRADE Financial Corporation (ETFC) : Free Stock Analysis Report
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Federated Hermes, Inc. (FHI) : Free Stock Analysis Report
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Zacks Investment Research