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Federated Hermes (FHI) Down 8.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Federated Hermes (FHI - Free Report) . Shares have lost about 8.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Federated Hermes due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Federated Q4 Earnings Top Estimates on Higher AUM

Federated Hermes reported fourth-quarter 2020 earnings per share of 93 cents, outpacing the Zacks Consensus Estimate of 80 cents. The figure also compares favorably with the prior-year quarter earnings of 81 cents.

Higher revenues, controlled expenses and improved AUM were driving factors. Also, the company’s liquidity position was strong. Yet, voluntary fee waivers and reduced net service fees were deterrents.

Net income was $95.2 million compared with the year-ago quarter’s $82.1 million.

In 2020, the company reported net income of $326.4 million or $3.23 per share compared with $272.3 million or $2.69 in 2019. Additionally, the bottom line surpassed the Zacks Consensus Estimate of $3.09.

Revenues Climb on Higher AUM, Costs Down

In full-year 2020, the company generated revenues of $1.45 billion, up 9% from the previous year. The revenue figure beat the consensus estimate of $1.44 billion.

Fourth-quarter total revenues climbed 2% year over year to $363.9 million. Moreover, the top line surpassed the Zacks Consensus Estimate of $351.4 million. This top-line growth mainly stemmed from higher average money market, equity and fixed-income assets, along with higher performance fees, partly negated by voluntary fee waivers associated with certain money market funds in order for those funds to maintain positive or zero net yields.

Also, net investment advisory fees jumped 9% year over year to $265.6 million. In addition, administrative service fees grew 14% to $79.2 million. However, net service fees (other) plummeted 57% to $19.1 million.

During the October-December quarter, Federated derived 32% of its revenues from money-market assets, 42% from equity, 15% from fixed-income assets, 10% from alternative/private markets and multi asset, and the remaining 1% from sources other than managed assets.

The company recorded non-operating income of $14.7 million in the reported quarter, up 65% from the prior-year quarter.

Total operating expenses slipped 2% year on year to $249.1 million. Lower distribution and travel expenses, along with reduced office and occupancy costs, mainly resulted in this decline. These decreases were partly negated by higher compensation and professional service fees, systems and communications, advertising and promotional, along with other expenses.

Asset Position Steady

As of Dec 31, 2020, total AUM came in at a record $619.4 billion — up 8% year on year. Average managed assets summed $610.5 billion, up 11% year on year.

Federated witnessed money-market assets of $420.3 billion, up 6% from the year-ago period. Further, fixed-income assets were up 22% year over year to $84.3 billion.

Additionally, record equity assets of $91.8 billion rose 3% year on year. In addition, alternative market assets increased 5% to $19.1 billion.

As of Dec 31, 2020, cash and other investments were $438.8 million and total long-term debt was $75 million compared with $340.6 million and $100 million, respectively, as of Dec 31, 2019.

Capital Deployment Update

For 2020, Federated repurchased 2.94 million shares of Federated class B common stock for $67.9 million. Notably, during the fourth quarter, the company repurchased 515,700 shares of Federated class B common stock for $13.8 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Federated Hermes has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Federated Hermes has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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