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5 Reasons to Buy Federated Investors (FII) Stock Right Now

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Performance of the Finance sector in the first half of 2016, as a whole, mirrored the significant economic volatility witnessed during the period. Slowdown in China’s economy, a stressed energy sector, uncertainty over the timing of the Fed rate hike and several other macroeconomic factors dominated the headlines.

Investment management (part of the broader Finance sector) performed poorly too, as investors turned risk averse, leading to significant outflows across the industry. Moreover, assets under management for several investment managers did not witness any significant growth in the six-month period ending Jun 30, 2016.

Nevertheless, it is not prudent to avoid the whole industry owing to these factors. There are many companies with decent performance history and strong fundamentals, signaling a profitable investment opportunity.

One such name in the investment management industry is Federated Investors Inc. . The company’s diversified product and revenue mix, solid global presence, enhanced capital deployment and robust asset inflows make it an attractive pick.

Further, the stock has been witnessing a steady rise in its share price. Year-to-date, Federated Investors has risen approximately 12.3%. This indicates that investors are happy with the company’s activities.

Why this Stock is a Solid Pick?

Revenue Strength: Federated Investors has been witnessing consistent improvement in revenues for the past few years. Over the last three years (2013–2015), the company’s revenues recorded a CAGR of 2.7%. Its projected sales growth (F1/F0) of 23.2% ensures continuation of the upward trend in revenues.

Earnings Per Share Growth: Federated Investors witnessed earnings per share CAGR of 2.2% over the last three years (2013–2015). The earnings momentum is expected to continue in the near term as reflected by the company’s projected EPS growth (F1/F0) of 20.7% compared with the negative industry average rate of 5.6%.

Also, the company’s long-term (3-5 years) estimated EPS growth rate of 8.6% promises rewards for investors.

Robust Asset Base: At the time when money market funds are under pressure owing to the lingering low interest-rate environment and stringent regulations, acquiring money market assets depicts buoyancy of the company in the money market business. Over the past few years, Federated Investors has acquired over $9 billion of money market assets. Increased money market AUM will furnish the company with various new fund offerings that would benefit its clients.

Superior Return on Equity (ROE): Federated Investors’ ROE of 25.99%, as compared with the industry average of 10.97%, reflects the company’s commendable position over its peers.

Estimate Revisions: The Zacks Consensus Estimate for Federated Investors rose 3.2% to $1.96 per share for 2016 and 5% to $2.10 per share for 2017 over the past 30 days. The positive earnings estimate revisions indicate analysts’ confidence and substantiate the Zacks Rank #2 (Buy) for the stock.

Other Stocks to Consider

Some other stocks in the same industry worth a look include Eaton Vance Corp. (EV - Free Report) , Principal Financial Group Inc. (PFG - Free Report) and Fifth Street Asset Management Inc. . All these stocks hold the same Zacks Rank as Federated Investors.

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