An Investment in Investing – Federated Investors, Inc.
Federated Investors [NYSE:FII] - May 23, 2008 Close: $34.70
52-week range: $30.31 [Aug. 16, 2007] - $45.01 [Jan. 23, 2008]
Dividend = $0.24 quarterly for a 2.77% current yield
Founded in 1955, Federated Investors is an industry leader with 147 domestic and international mutual funds as well as separately managed accounts. They distribute their equity, bond and money market products through approximately 5400 securities dealers worldwide. Federated came public on May 13, 1998 @ $12.25 or about 17.3x that year’s EPS.
Assets under management [AUM] have grown dramatically in the past decade. They first surpassed $100 billion in 2001, were $213.4 billion at year-end 2005 and were over $300 billion by the end of 2007. As of
March 31, 2008 they stood at a record $338.5 billion despite the horrible stock market conditions.
Their growth is easiest to see in chart form:
[Figures are per share – Source: Value Line]
Year... Revenues...Cash Flow …EPS … Dividend ..Book Value
2007 … $11.08 ….. $2.70 …… $2.12 …..$0.81 …….. $5.64
2006 …. $9.42 …… $2.40 …… $1.80 …..$0.69 …….. $5.10
2005 …. $8.49 …… $2.07 …… $1.84 …..$0.58 …….. $5.05
2004 …. $7.92 …… $2.03 …… $1.77 …..$0.41 …….. $4.28
2003 …. $7.58 …… $2.07 …… $1.83 …..$0.30 …….. $3.64
2002.…. $6.32 …… $1.98 …… $1.74 …..$0.22 …….. $3.03
2001 .... $6.20 …… $1.72 …… $1.44 …..$0.18 …….. $2.06
2000 …. $5.81 …… $1.40 …… $1.27 …..$0.14 …….. $1.26
1999 …. $4.90 …… $1.07 …… $0.96 …..$0.11 …….. $0.97
1998 …. $4.04 …… $0.71 …… $0.71 …..$0.05 …….. $0.69
A very nice 10-year record in all respects.
Value Line assigns FII shares an ‘A’ for financial strength and long-term debt is just 12% of capital. As of March 31 they held $183.3 MM in treasury cash versus total debt of just $83.1 MM.
Earnings predictability is an extremely high 95th percentile [with 100th being best]. Federated gets an 85th percentile ranking from Value Line on ‘stock price stability’.
The dividend has been raised at least once each year since the shares came public in 1998. The rate was increased by 14.28% in the current quarter.
With projected 2008 EPS of $2.45 the generous 2.77% yield is well covered with a payout ratio of 39.2%.
Since their IPO year, management has been steadily retiring shares. From 129.3MM shares outstanding at the end of 1998 the share count had shrunk to just about 101.8 MM as of year-end 2007. That 21.2% cumulative buy-back was done entirely with free cash flow even as the dividend increased.
Federated’s average P/E over the past 10 years has been 16.9x. Earnings could surprise to the upside should stock prices pick up later this year or early in 2009. Meanwhile the bond and money market side of the business is booming as risk-averse investors take temporary shelter.
Preliminary views for 2009 [without figuring in much of an equity market rebound] are now at $2.74 /share. Federated shares now trade at just 14.2x this year’s and 12.7x next year’s expected EPS.
A return to a normalized 16.9 multiple on next year’s estimate leads me to an 18 month target price of $46.30 or up 33.4% from last week’s quote.
Add in the dividend and I could easily see a total return of about 38% on these stable, relatively safe shares by year-end 2009.
Is a goal price of $46.30 reasonable? Federated shares hit highs of $40.20, $43.30 and $45.01 in 2006, 2007 and 2008 respectively and the fundamentals are now at all-time best levels.
Disclosure: Author owns shares and is short puts on FII.
Federated Investors [NYSE:FII] - May 23, 2008 Close: $34.70
52-week range: $30.31 [Aug. 16, 2007] - $45.01 [Jan. 23, 2008]
Dividend = $0.24 quarterly for a 2.77% current yield
Founded in 1955, Federated Investors is an industry leader with 147 domestic and international mutual funds as well as separately managed accounts. They distribute their equity, bond and money market products through approximately 5400 securities dealers worldwide. Federated came public on May 13, 1998 @ $12.25 or about 17.3x that year’s EPS.
Assets under management [AUM] have grown dramatically in the past decade. They first surpassed $100 billion in 2001, were $213.4 billion at year-end 2005 and were over $300 billion by the end of 2007. As of
March 31, 2008 they stood at a record $338.5 billion despite the horrible stock market conditions.
Their growth is easiest to see in chart form:
[Figures are per share – Source: Value Line]
Year... Revenues...Cash Flow …EPS … Dividend ..Book Value
2007 … $11.08 ….. $2.70 …… $2.12 …..$0.81 …….. $5.64
2006 …. $9.42 …… $2.40 …… $1.80 …..$0.69 …….. $5.10
2005 …. $8.49 …… $2.07 …… $1.84 …..$0.58 …….. $5.05
2004 …. $7.92 …… $2.03 …… $1.77 …..$0.41 …….. $4.28
2003 …. $7.58 …… $2.07 …… $1.83 …..$0.30 …….. $3.64
2002.…. $6.32 …… $1.98 …… $1.74 …..$0.22 …….. $3.03
2001 .... $6.20 …… $1.72 …… $1.44 …..$0.18 …….. $2.06
2000 …. $5.81 …… $1.40 …… $1.27 …..$0.14 …….. $1.26
1999 …. $4.90 …… $1.07 …… $0.96 …..$0.11 …….. $0.97
1998 …. $4.04 …… $0.71 …… $0.71 …..$0.05 …….. $0.69
A very nice 10-year record in all respects.
Value Line assigns FII shares an ‘A’ for financial strength and long-term debt is just 12% of capital. As of March 31 they held $183.3 MM in treasury cash versus total debt of just $83.1 MM.
Earnings predictability is an extremely high 95th percentile [with 100th being best]. Federated gets an 85th percentile ranking from Value Line on ‘stock price stability’.
The dividend has been raised at least once each year since the shares came public in 1998. The rate was increased by 14.28% in the current quarter.
With projected 2008 EPS of $2.45 the generous 2.77% yield is well covered with a payout ratio of 39.2%.
Since their IPO year, management has been steadily retiring shares. From 129.3MM shares outstanding at the end of 1998 the share count had shrunk to just about 101.8 MM as of year-end 2007. That 21.2% cumulative buy-back was done entirely with free cash flow even as the dividend increased.
Federated’s average P/E over the past 10 years has been 16.9x. Earnings could surprise to the upside should stock prices pick up later this year or early in 2009. Meanwhile the bond and money market side of the business is booming as risk-averse investors take temporary shelter.
Preliminary views for 2009 [without figuring in much of an equity market rebound] are now at $2.74 /share. Federated shares now trade at just 14.2x this year’s and 12.7x next year’s expected EPS.
A return to a normalized 16.9 multiple on next year’s estimate leads me to an 18 month target price of $46.30 or up 33.4% from last week’s quote.
Add in the dividend and I could easily see a total return of about 38% on these stable, relatively safe shares by year-end 2009.
Is a goal price of $46.30 reasonable? Federated shares hit highs of $40.20, $43.30 and $45.01 in 2006, 2007 and 2008 respectively and the fundamentals are now at all-time best levels.
Disclosure: Author owns shares and is short puts on FII.
