Federated Investors (FHI) Down 17.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Federated Investors (FHI). Shares have lost about 17.2% 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 Investors due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Federated Q4 Earnings Beat Estimates on Higher Revenues

Federated delivered a positive earnings surprise of 14.1% in fourth-quarter 2019. Earnings per share of 81 cents surpassed the Zacks Consensus Estimate of 71 cents. Moreover, the figure compared favorably with the prior-year quarter earnings of 61 cents.

Higher revenues and improved assets under management (AUM) were positives. Also, the company’s liquidity position was strong. However, elevated expenses were on the downside.

Net income was $82.1 million compared with $61.5 million in the year-ago quarter.

In 2019, the company reported net income of $272.3 million or $2.69 per share compared with $220.3 million or $2.18 in 2018.

Revenues Rise, Costs Escalate

Fourth-quarter total revenues climbed 17% year over year to $358 million. Also, the top line surpassed the Zacks Consensus Estimate of $350 million.

In full-year 2019, the company generated revenues of $1.33 billion, up 17% from the previous year. The figure beat the consensus estimate of $1.32 billion.

The top-line growth mainly stemmed from higher average money market and equity assets along with an increase in revenues from assets acquired from PNC Bank, N.A during the quarter.

Also, net investment advisory fees jumped 14% year over year to $243.6 million. In addition, administrative service fees surged 34% to $69.6 million. Further, net service fees (other) jumped 9% to $44.8 million.

During the fourth quarter, Federated derived 42% of its revenues from money-market assets, 52% from equity and fixed-income assets, 5% from alternative/private markets and multi-asset and remaining 1% from sources other than managed assets.

With support from higher net investment income and lower debt expenses, the company recorded non-operating income of $8.88 million in the quarter against expenses of $6.16 million a year ago.

Total operating expenses escalated 16% year over year to $255.2 million. The rise was primarily due to higher office and occupancy, systems and communications and compensation and related expenses.

Steady Asset Position

As of Dec 31, 2019, total AUM was a record $575.9 billion — up 25% year over year. Average managed assets were $550.1 billion, up 24%.

Federated witnessed equity assets of $89 billion, rising 23% year over year. Also, money market mutual fund assets came in at $286.6 billion, up 37%.

Further, fixed-income assets grew 9% year over year to $69 billion. Additionally, money-market assets increased 31% to $395.5 billion.

As of Dec 31, 2019, cash and other investments were $340.6 million and total long-term debt totaled $100 million compared with $190.5 million and $135 million, respectively, as of Dec 31, 2018.

Capital Deployment Update

During 2019, Federated repurchased 614,077 shares of Federated class B common stock, for $15.7 million. Notably, during the December-end quarter, the company repurchased 421,052 shares of Federated class B common stock, for $11.7 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 13.53% due to these changes.

VGM Scores

Currently, Federated Investors has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 this revision looks promising. It comes with little surprise Federated Investors has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.