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

FEDERATED HERMES INC (NYSE:FHI) was identified as a decent value stock by our screening process. The company combines an attractive valuation with solid profitability, strong financial health, and steady growth prospects. Below, we examine why FHI stands out as a candidate for value investors.

Valuation

FHI’s valuation metrics suggest the stock is priced reasonably compared to its industry and broader market:

• P/E Ratio: At 12.06, FHI trades below the industry average (17.78) and significantly below the S&P 500 average (26.60).
• Forward P/E: The forward P/E of 9.89 indicates further earnings growth is expected, making the stock even more attractive.
• Enterprise Value/EBITDA: FHI is cheaper than 93.5% of its peers in the capital markets industry.
• PEG Ratio: A low PEG ratio suggests the stock is undervalued relative to its earnings growth potential.

Financial Health

FHI scores exceptionally well on financial stability:

• Low Debt: A debt-to-equity ratio of 0.32 indicates minimal reliance on borrowing.
• Strong Liquidity: Current and quick ratios of 3.04 demonstrate ample ability to meet short-term obligations.
• Altman-Z Score: At 5.35, bankruptcy risk is negligible, outperforming 85% of industry peers.

Profitability

The company maintains strong profitability metrics:

• ROIC & ROE: Return on invested capital (22.88%) and return on equity (32.83%) rank in the top 3% of the industry.
• Margins: A gross margin of 95.3% is well above most competitors, though operating and net margins have stabilized recently.

Growth

While past growth has been modest, future expectations are promising:

• EPS Growth: Earnings per share are projected to grow at 12.89% annually over the next few years.
• Revenue Growth: Revenue growth has been steady (4.26% average over past years), with expectations of continued expansion.

Our Decent Value screener lists more stocks with similar characteristics and is updated daily.
For a deeper dive, review the full fundamental report on FHI.

Disclaimer

This is not investment advice. The observations here are based on data available at the time of writing. Always conduct your own research before making investment decisions.