As the stock market fluctuates, it's essential to understand the true value of a company's stock. Today, we delve into the financial landscape of Federated Hermes Inc (FHI, Financial), a leading asset management firm. With a daily gain of 2.43%, a 3-month loss of 0.6%, and Earnings Per Share (EPS) of 3, is Federated Hermes (FHI) modestly undervalued? Let's find out.
Company Introduction
Federated Hermes Inc (FHI, Financial) provides asset management services for institutional and individual investors. As of June 2023, the company had $704.0 billion in managed assets, diversified across equity, multi-asset, fixed-income, alternative, and money market funds. The firm's cash-management operations are expected to generate around 48% of Federated Hermes' revenue this year. Currently, the company's stock price is $34.36, with a market cap of $3 billion.
Understanding GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. It considers historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to our valuation method, Federated Hermes (FHI, Financial) appears to be modestly undervalued. Given this, the long-term return of its stock is likely to be higher than its business growth.
Federated Hermes' Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Thus, it's crucial to review a company's financial strength before buying shares. Federated Hermes has a cash-to-debt ratio of 1.18, which ranks worse than 62.08% of 1474 companies in the Asset Management industry. Despite this, GuruFocus ranks Federated Hermes's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Federated Hermes has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.60 billion and Earnings Per Share (EPS) of $3. Its operating margin is 21.91%, which ranks better than 57.62% of 604 companies in the Asset Management industry. Overall, GuruFocus ranks the profitability of Federated Hermes at 10 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Federated Hermes is 7.3%, which ranks better than 54.1% of 891 companies in the Asset Management industry. However, the 3-year average EBITDA growth is 2.9%, which ranks worse than 61.3% of 460 companies in the Asset Management industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Federated Hermes's ROIC is 17.42 while its WACC came in at 9.38.
Conclusion
In summary, the stock of Federated Hermes (FHI, Financial) is estimated to be modestly undervalued. The company's financial condition is strong, and its profitability is robust. However, its growth ranks worse than 61.3% of 460 companies in the Asset Management industry. To learn more about Federated Hermes stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
