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Why Investors Should Buy Federated Hermes (FHI) Stock Now
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Federated Hermes, Inc. (FHI - Free Report) is a solid bet now, given its strong fundamentals and continued strategic acquisitions. Further, backed by a strong liquidity position, its sustainable capital deployment activities are likely to continue enhancing shareholder value.
Over the past 60 days, the Zacks Consensus Estimate for Federated Hermes’ earnings has moved 1.5% upward for 2023 and moved marginally upward for 2024. Currently, the company carries a Zacks Rank #2 (Buy).
Federated Hermes’ shares have gained 10.5% over the past year compared with the industry’s rise of 13.3%.
Image Source: Zacks Investment Research
A few other aspects that make the company an attractive investment option right now are mentioned below.
Earnings Growth: Federated Hermes has an impressive earning surprise history. Its earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, with the average surprise being 11.04%. In the last three to five years, the company witnessed earnings per share growth of 6.07%. FHI’s earnings are projected to grow 8.6% and 12% in 2023 and 2024, respectively.
Strong Balance Sheet Position: The company has a robust balance sheet position. As of Mar 31, 2023, its long-term debt was $347.6 million, while its cash and other investments were $488 million. Hence, given a decent liquidity position and manageable debt levels, it 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: Federated Hermes’ capital deployment activities seem encouraging. In June 2022, the company’s board of directors authorized a share repurchase program of up to 5 million shares of common stock. It repurchased $207.4 million worth of shares in 2022 and $4.7 million worth of shares during the first quarter of 2023. As of Mar 31, 2023, 4.6 million shares remained under the current authorization.
Additionally, the company pays regular dividends to its shareholders. In April 2023, it sequentially hiked its quarterly dividend by 3.7% to 28 cents per share. Hence, given the balance-sheet strength and continuous usage of cash for capital deployment, the company is expected to boost investor confidence in the stock.
Inorganic Growth: Federated Hermes’ inorganic growth strategy looks promising. In the last few years, the company has inked strategic deals and thereby expanded operations in strategic markets. The buyout of C.W. Henderson and Associates, Inc. expanded its separately managed account business. Additionally, in 2021, it completed the buyout of certain investment management-related assets of Horizon Advisers, and the remaining 29.5% interest in London-based Hermes Fund Managers Limited from BTPS.
These strategic deals and the focus on acquiring money market assets will likely aid the company’s revenues and improve the asset under management (AUM) balance. We project the average AUM to increase 8% this year.
Superior Return on Equity (ROE): The company’s ROE of 27.83% is higher than the industry average of 12.69%. This shows that it reinvests its cash more efficiently than its peers.
The Zacks Consensus Estimate for Artisan Partners’ current-year earnings has been revised 3.4% upward over the past 60 days. Its shares have gained 22.2% in the past three months.
Capital Southwest’s earnings estimates for 2023 have been revised around 2% upward over the past 60 days. In the past three months, CSWC’s shares have gained 9.7%.
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Why Investors Should Buy Federated Hermes (FHI) Stock Now
Federated Hermes, Inc. (FHI - Free Report) is a solid bet now, given its strong fundamentals and continued strategic acquisitions. Further, backed by a strong liquidity position, its sustainable capital deployment activities are likely to continue enhancing shareholder value.
Over the past 60 days, the Zacks Consensus Estimate for Federated Hermes’ earnings has moved 1.5% upward for 2023 and moved marginally upward for 2024. Currently, the company carries a Zacks Rank #2 (Buy).
Federated Hermes’ shares have gained 10.5% over the past year compared with the industry’s rise of 13.3%.
Image Source: Zacks Investment Research
A few other aspects that make the company an attractive investment option right now are mentioned below.
Earnings Growth: Federated Hermes has an impressive earning surprise history. Its earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, with the average surprise being 11.04%. In the last three to five years, the company witnessed earnings per share growth of 6.07%. FHI’s earnings are projected to grow 8.6% and 12% in 2023 and 2024, respectively.
Strong Balance Sheet Position: The company has a robust balance sheet position. As of Mar 31, 2023, its long-term debt was $347.6 million, while its cash and other investments were $488 million. Hence, given a decent liquidity position and manageable debt levels, it 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: Federated Hermes’ capital deployment activities seem encouraging. In June 2022, the company’s board of directors authorized a share repurchase program of up to 5 million shares of common stock. It repurchased $207.4 million worth of shares in 2022 and $4.7 million worth of shares during the first quarter of 2023. As of Mar 31, 2023, 4.6 million shares remained under the current authorization.
Additionally, the company pays regular dividends to its shareholders. In April 2023, it sequentially hiked its quarterly dividend by 3.7% to 28 cents per share. Hence, given the balance-sheet strength and continuous usage of cash for capital deployment, the company is expected to boost investor confidence in the stock.
Inorganic Growth: Federated Hermes’ inorganic growth strategy looks promising. In the last few years, the company has inked strategic deals and thereby expanded operations in strategic markets. The buyout of C.W. Henderson and Associates, Inc. expanded its separately managed account business. Additionally, in 2021, it completed the buyout of certain investment management-related assets of Horizon Advisers, and the remaining 29.5% interest in London-based Hermes Fund Managers Limited from BTPS.
These strategic deals and the focus on acquiring money market assets will likely aid the company’s revenues and improve the asset under management (AUM) balance. We project the average AUM to increase 8% this year.
Superior Return on Equity (ROE): The company’s ROE of 27.83% is higher than the industry average of 12.69%. 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 Artisan Partners Asset Management (APAM - Free Report) and Capital Southwest (CSWC - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Artisan Partners’ current-year earnings has been revised 3.4% upward over the past 60 days. Its shares have gained 22.2% in the past three months.
Capital Southwest’s earnings estimates for 2023 have been revised around 2% upward over the past 60 days. In the past three months, CSWC’s shares have gained 9.7%.