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.
-- Written by a member of TheStreet Ratings Staff