With recording positive net equity sales for the eighth consecutive quarter (ended September 2015) and 17% year-over-year growth in earnings per share, Federated Investors, Inc. FII can be a solid bet now. The company’s diversified asset as well as product mix along with the continued acquisition of money market assets amid volatile markets is expected to yield positive results for the stock.
Further, the recent interest rate hike is expected to bring further stability to top-line generation, which creates a buying opportunity for long-term horses. Though compliance-related fees are continuing to escalate for Federated, given the strictly regulated nature of investment management business, sharper focus on restructuring the product line and merging certain funds is expected to make the growth path smoother.
With $351 billion in managed assets as of Sep 30, 2015, Federated’s strengths include strong top-line growth, strategic deals and steady capital deployment activities.
6 Reasons Why Federated is a Golden Egg
Revenue Growth: Federated’s revenues reflected consistent growth over the last 6 quarters. The sturdy top-line growth was backed by high net Investment Advisory Fees, which constitutes around 67% of total revenue.
The company’s projected sales growth (F1/F0) of 7.73% (as against the industry average of about 0.0%) indicates continued upward momentum in revenues.
Strategic Deals: Under the prevailing pressure for money market funds, acquiring money market assets depicts buoyancy of the company in the money market business. Over the past three years, Federated has acquired more than $9 billion of money market assets.
Strong Leverage: Federated’s debt/equity ratio stands at 0.31 compared to the S&P 500 average of 0.65, indicating relative lower debt burden. It indicates the financial stability of the company even in an unstable economic environment.
Superior Return on Equity (ROE): Federated’s ROE of 25.9%, as compared with the industry average of 12.0%, reflects the company’s commendable position over its peers.
Favorable Zacks Rank: Federated currently carries a Zacks Rank #2 (Buy). For 2015 and 2016, the Zacks Consensus Estimate remained stable at $1.60 and $2.03 per share, respectively.
Steady Capital Deployment: Federated remains focused on managing capital levels efficiently. In February 2015, the company raised its share repurchase authorization to an additional 4 million shares. Also, the company has been regularly paying dividends of 25 cents per share each quarter, following a 4% hike in July 2013. Such capital deployment activities are anticipated to boost investors’ confidence.
Bottom Line
Organic growth remains a key strength at Federated, while cost control efforts should support the bottom-line growth.
Moreover, in the last few years, Federated has deployed capital towards strategic deals and thereby expanded operations in the United Kingdom and Chile. Notably, the company remains focused on seeking alliances and acquisitions to grow business in Europe and the Asia-Pacific region. Such efforts are commendable.
Other Stocks to Consider
Some other stocks in the banking space worth considering include Cohen & Steers Inc. CNS, Janus Capital Group, Inc. JNS and Woori Bank Co., Ltd. WF. All three stocks carry the same rank as Federated.
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