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Federated Investors Inc. Stock Downgraded (FII)

NEW YORK ( TheStreet) -- Federated Investors (NYSE: FII) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its increase in net income, largely solid financial position with reasonable debt levels by most measures and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including poor profit margins, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 27.4% when compared to the same quarter one year prior, rising from $33.23 million to $42.33 million.
  • The debt-to-equity ratio is somewhat low, currently at 0.62, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, FII has a quick ratio of 2.14, which demonstrates the ability of the company to cover short-term liquidity needs.
  • FEDERATED INVESTORS INC has improved earnings per share by 28.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, FEDERATED INVESTORS INC reported lower earnings of $1.46 versus $1.71 in the prior year. This year, the market expects an improvement in earnings ($1.68 versus $1.46).
  • FII has underperformed the S&P 500 Index, declining 22.91% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The gross profit margin for FEDERATED INVESTORS INC is currently lower than what is desirable, coming in at 31.80%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 18.40% is above that of the industry average.

Federated Investors, Inc. is a publicly owned asset management holding company. The company has a P/E ratio of 13.1, above the average financial services industry P/E ratio of 12.2 and below the S&P 500 P/E ratio of 17.7. Federated Investors has a market cap of $1.98 billion and is part of the financial sector and financial services industry. Shares are up 23.8% year to date as of the close of trading on Tuesday.

You can view the full Federated Investors Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

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