Why Is Federated Investors (FII) Up 3.9% Since The Last Earnings Report?

About a month has gone by since the last earnings report for Federated Investors, Inc. (NYSE:FII) . Shares have added about 3.9% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Federated Q3 Earnings Beat, Revenues & Costs Decline

Federated delivered a positive earnings surprise of around 6% for third-quarter 2017, marking the tenth straight quarter of earnings beat. Earnings per share of 56 cents beat the Zacks Consensus Estimate of 53 cents and improved 4% year over year.

The results were driven by lower expenses and increase in assets. Strong liquidity position was a tailwind. However, decline in revenues and AUM were the undermining factors.

Net income for the quarter came in at $56.4 million, up 3% year over year.

Revenues and Costs Decline

Total revenues of $278.3 million missed the Zacks Consensus Estimate of $278.4 million. Further, the figure declined 6% year over year.

The decline was attributed to decreased revenues from lower average money market assets and a reduction in revenues resulting from a change in customer relationship. It was partially offset by reduced voluntary fee waivers related to money market funds and increased revenues from higher average equity and fixed-income assets.

Net service fees increased 7% year over year to $45.6 million. However, administrative service fees were down 11% to $47.5 million. Also, net investment advisory fees declined 6% to $184.9 million.

During the reported quarter, Federated derived 40% of its revenues from money market assets and the remaining 60% from equity and fixed-income assets.

Non-operating income dropped 20% year over year to $2.3 million due to lower net investment and other income.

Total operating expenses declined 8% year over year to $189.6 million. Lower expenses primarily exhibit a decrease in compensation and related costs, resulting from drop in incentive compensation and lower distribution expenses related to fall average money market fund assets and a change in customer relationship.

Assets and AUM

Federated witnessed equity assets of $67.1 billion, up 5% year over year. Additionally, fixed-income assets grew 2% year over year to $52.8 billion.

As of Sep 30, 2017, total AUM was $363.7 billion, down slightly year over year. Average managed assets were $360.5 billion, down 1.3% from the prior-year quarter.

Money market assets decreased 2% year over year to $243.8 billion. Moreover, money market mutual fund assets came in at $177.9 billion, down 15% year over year.

As of Sep 30, 2017, cash and other investments were $328.3 million and long-term debt totaled $175 million compared with $301.1 million and $165.8 million, respectively, as of Dec 31, 2016.

Outlook

Management expects compensation and related expense to be in the range of $71-72 million for the fourth-quarter.

The effective tax rate for fourth-quarter is expected to be about 35.5%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 7.1% due to these changes.

VGM Scores

At this time, Federated Investors' stock has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value and growth investors than momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. The stock has a a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.