Federated (FII) May Disappoint Due to Top-Line, AUM Stress - Analyst Blog

On Sep 2, 2014, we issued an updated research report on Federated Investors, Inc. ( FII ). While expense management remained a strength, pressurized top line and reduction in assets under management (AUM) continue to be the concerns.

Federated's significant dependence on fees from varied managed assets that tend to fluctuate weighs heavily on its profitability. To add to the troubles, the new regulations by the Securities and Exchange Commission (SEC) for the money market fund business are expected to affect the company's business operations going forward.

Moreover, Federated's second-quarter 2014 results showed declining year-over-year performance. Halfway through 2014, the company reported a 3% decrease in the average managed assets compared with the corresponding prior-year period. Also, revenue fell 6% in the first half of 2014.

Though several acquisitions undertaken by Federated are expected to ease top-line pressure in the long run, the volatile equity markets and sluggish global economic growth are expected to keep assets under management, asset flows and margins under strain.

This can be observed in the Zacks Consensus Estimate for 2014, which fell 1.4% over the last 30 days and decreased by a penny for 2015 over the same time period.

On the other side, operating expenses declined 3% in the first half of 2014, reflecting Federated's proficient expense management. Also, its moderately liquid balance sheet and a diversified asset as well as product mix may offer better growth prospects going forward. The company's sustained capital deployment activities also remain impressive. However, these positives are yet to be reflected in estimate revisions.

Federated now has a Zacks Rank #4 (Sell).

Stocks That Warrant a Look

Some better-ranked finance stocks include AllianceBernstein Holding L.P. ( AB ), Monroe Capital Corporation ( MRCC ) and PennantPark Floating Rate Capit ( PFLT ). All these stocks sport a Zacks Rank #1 (Strong Buy).

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FEDERATED INVST (FII): Free Stock Analysis Report

ALLIANCEBERNSTN (AB): Free Stock Analysis Report

PENNANTPARK FRC (PFLT): Free Stock Analysis Report

MONROE CAPITAL (MRCC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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