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

FEDERATED HERMES INC (NYSE:FHI) was identified by our stock screener as a decent value stock, combining an attractive valuation with solid profitability and financial health. The company operates in the capital markets industry, providing investment management services with a strong track record. Below, we examine why FHI stands out as a potential opportunity for value investors.

Key Strengths

Valuation (Rating: 8/10)
FHI appears reasonably priced compared to industry peers and the broader market:

• P/E Ratio: At 12.83, it trades below the industry average (18.94) and the S&P 500 (27.45).
• Forward P/E: 10.17 suggests further earnings growth is not fully priced in.
• Enterprise Value/EBITDA: FHI is cheaper than 93% of its industry peers, indicating a potential discount.

Profitability (Rating: 8/10)
The company demonstrates strong earnings power:

• Return on Equity (ROE): 32.83% outperforms 96% of industry peers.
• Return on Invested Capital (ROIC): 22.88% is well above the industry average.
• Gross Margin: 95.30% is among the best in the sector.

Financial Health (Rating: 8/10)
FHI maintains a robust balance sheet:

• Low Debt: Debt-to-Equity ratio of 0.32 indicates minimal reliance on borrowing.
• Liquidity: Current and Quick ratios of 3.04 show ample ability to meet short-term obligations.
• Altman-Z Score: 5.49 signals low bankruptcy risk.

Growth (Rating: 4/10)
While growth is modest, future earnings are expected to improve:

• EPS Growth: Projected to rise by 12.89% annually over the next few years.
• Revenue Growth: A steady but slower increase of 2.46% is anticipated.

Dividend Considerations

FHI offers a 3.09% 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 future earnings growth.

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

Disclaimer

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