FEDERATED HERMES INC (NYSE:FHI) – A Potentially Undervalued Stock with Strong Fundamentals

FEDERATED HERMES INC (NYSE:FHI) was identified by our Decent Value stock screener as a candidate for value investors. The company combines solid profitability and financial health with an attractive valuation, making it worth a closer look.

Valuation

FHI appears reasonably priced with a Price/Earnings (P/E) ratio of 11.99, below both the industry average (17.03) and the S&P 500 (25.91). The Forward P/E of 9.83 further supports the case for undervaluation. Additionally:

• 94% of industry peers are more expensive based on Enterprise Value/EBITDA.
• The PEG ratio suggests the stock is cheap relative to expected earnings growth.

Financial Health

FHI scores 9 out of 10 for financial health, indicating a strong balance sheet:

• Low debt levels (Debt/Equity ratio of 0.32) and a quick ratio of 3.04 highlight liquidity strength.
• An Altman-Z score of 5.34 signals low bankruptcy risk.
• The company has been reducing shares outstanding, improving per-share metrics.

Profitability

With a profitability rating of 8/10, FHI delivers strong returns:

• Return on Assets (17.65%) and Return on Equity (32.83%) rank in the top tier of its industry.
• Gross margins of 95.30% are well above industry averages.
• Operating margins remain stable at 27.37%, though profit margins have slightly declined.

Growth

While growth is modest, expectations are improving:

• Earnings are projected to grow 9.88% annually, an acceleration from past trends.
• Revenue growth has been steady but slow (2.68% YoY).

Dividend

FHI offers a 3.17% dividend yield, slightly above the S&P 500 average. The dividend has grown at 15.47% annually over the past decade, though sustainability depends on earnings growth.

Our Decent Value screener lists more stocks with similar characteristics. For a deeper dive, review the full fundamental report for FHI.

Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should always conduct your own analysis before making investment decisions.