Here's Why Federated (FHI) Stock is Worth Buying Right Now
Federated Hermes, Inc. FHI is a solid bet now, given its strong fundamentals and an improvement in assets under management (AUM) balance. Further, backed by a decent liquidity position, its sustainable capital distribution activities are likely to continue enhancing shareholder value.
The Zacks Consensus Estimate for Federated's 2024 earnings has been revised 1% north over the past week. This shows that analysts are optimistic regarding the company’s earnings prospects. FHI currently sports a Zacks Rank #1 (Strong Buy).
Over the past three months, shares of the company have gained 10.8% compared with the industry's growth of 19.8%.
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Here are a few factors that make FHI stock a rewarding investment pick now:
Earnings Growth: Federated has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 6.46%. In the last three to five years, the company witnessed earnings per share growth of 5.59%. FHI’s earnings are projected to grow 6.47% and 10.6% in 2024 and 2025, respectively.
Solid AUM Balance: In 2023, its total money market assets grew 17.4%. Increased money market AUM will furnish the company with various new fund offerings that would benefit its clients.
Its average AUM witnessed a five-year (ended 2023) compound annual growth rate of 11.9%. The company’s inorganic growth efforts are expected to further drive average AUM in the upcoming period. Our estimates for average AUM suggest increase of 1%, 6.3% and 4% in 2024, 2025 and 2026, respectively.
Strong Balance Sheet Position: The company has a robust balance sheet position. As of Dec 31, 2023, long-term debt was $347.8 million. Its cash and other investments were $560.7 million. Hence, given a decent liquidity position and manageable debt levels, Federated has a lesser likelihood of defaulting on interest and debt repayments in the near term, even if the economic situation worsens.
Encouraging Capital Deployment Activities: In June 2022, the company’s board authorized a repurchase program of up to 5 million shares of common stock. In October 2023, it authorized an additional buyback program of up to 5 million shares with no expiration date. In 2022 and 2023, it repurchased shares worth $207.4 million and $178 million, respectively.
Apart from share buybacks, the company has regularly paid dividends since its initial public offering in 1998. It also pays special dividends from time to time, the latest being $1 per share paid in 2020. In April 2023, FHI sequentially hiked its quarterly dividend by 3.7% to 28 cents per share. Given the balance-sheet strength, we believe it is well poised to increase shareholder value and boost investors’ confidence in the stock through its capital distributions.
Superior Return on Equity (ROE): The company’s ROE of 26.76% is higher than the industry average of 13.88%. This shows that it reinvests its cash more efficiently than its peers.
Other Stocks to Consider
A couple of other top-ranked stocks from the asset management space are T. Rowe Price Group, Inc. TROW and SEI Investments Company SEIC, each sporting a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TROW’s current-year earnings has been revised marginally upward over the past week. Its shares have gained 11.9% in the past three months.
Estimates for SEIC’s 2024 earnings have been revised 2.3% upward over the past 30 days. In the past three months, SEIC’s shares have gained 14.9%
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T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
SEI Investments Company (SEIC) : Free Stock Analysis Report
Federated Hermes, Inc. (FHI) : Free Stock Analysis Report
