Federated Investors (FII) reported second-quarter 2011 earnings per share of $0.41, in line with the Zacks Consensus Estimate, and below the year-ago earnings of $0.46. Results reflected decreased top-line growth, increase in voluntary fee waivers, and increased operating expenses.
We expect downward pressure on AUM, flows and margins. Regulatory backdrop, waning equity markets and sluggish global economic growth are anticipated to keep earnings under pressure.
Our six-month target price of $19.00 equates to about 11.8x our earnings estimate for 2011. We view the $0.96 per common share annual dividend as secure, implying an expected negative return of about 8.7% over that period. This is consistent with our long-term Underperform recommendation on the shares.
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