Federated(FHI) ZACKS·2025-01-08 18:45Core Insights - Federated Hermes is experiencing growth in assets under management (AUM) and has a strong liquidity position, but rising expenses pose a near-term concern [1][6] Group 1: Factors Fuelling Federated Hermes - The acquisition of money market assets has led to a 10.5% increase in money market AUM in the first nine months of 2024 compared to the same period in 2023, enhancing the company's fund offerings [2] - The company's average AUM has shown a five-year compound annual growth rate (CAGR) of 11.9% as of 2023, with continued growth in the first nine months of 2024, driven by strategic acquisitions and alliances [3] - As of September 30, 2024, Federated Hermes had long-term debt of 565 million, supporting its capital distribution activities, including a 10.7% increase in quarterly dividends to 31 cents per share [4] Group 2: Share Repurchase and Return on Equity - The company has authorized an additional share repurchase program of up to 5 million shares, with 1.24 million shares available under the existing program as of September 30, 2024 [5] - Federated Hermes boasts a trailing 12-month return on equity (ROE) of 29.85%, significantly higher than the industry average of 12.87%, indicating effective utilization of shareholders' funds [5] Group 3: Challenges Facing Federated Hermes - Rising operating expenses have been a concern, with a five-year CAGR of 8.7% from 2018 to 2023, primarily driven by intangible asset-related costs, and this trend has continued into the first nine months of 2024 [6] - Net investment advisory fees accounted for 67.2% of total revenues in the first nine months of 2024, making the company vulnerable to fluctuations in the fair value of securities and redemption levels, which could impact revenues and profitability [7] Group 4: Market Performance - Federated Hermes currently holds a Zacks Rank 1 (Strong Buy), with its shares gaining 25% over the past year, compared to a 39.6% rise in the industry [8]