On Monday, RBC (TSX:RY) Capital adjusted its outlook on Federated Hermes Inc. (NYSE: NYSE:FHI), reducing the price target to $35 from the previous $37, while retaining a Sector Perform rating. The revision follows the company's first-quarter 2024 financial results, which included higher than anticipated long-term net outflows primarily due to equity net outflows.
The firm acknowledged the mixed results in Federated Hermes' quarterly report, noting that despite the increased outflows, there is an expectation of growth in money market fund (MMF) assets under management (AUM) in the second half of the year. The updated interest rate forecast suggests an increase in MMF inflows for 2025, with institutional flows serving as a significant contributor.
RBC Capital's stance on Federated Hermes remains neutral, with the belief that the current risk/reward profile is balanced. The decision to modify the price target to $35 reflects the firm's assessment of the company's financial performance and market conditions.
The analyst's comment provided insight into the rationale behind the price target adjustment: "FHI reported 1Q24 results with some puts/takes; LT net outflows were higher than expected, driven by equity net outflows. We still see meaningful MMF AUM growth, with more flows in 2H; updated rate outlook means more MMF flows in 2025 than previously assumed, driven by institutional flows. We are maintaining our Sector Perform rating as we think the risk/reward is balanced. Adjusting PT to $35 (from $37)."
InvestingPro Insights
In light of RBC Capital's recent price target adjustment for Federated Hermes Inc. (NYSE: FHI), it's valuable to consider additional insights that can inform investor decisions. With a market capitalization of approximately $2.63 billion and a P/E ratio standing at 9.35, FHI appears to be trading at a valuation that could interest value-oriented investors. This is further supported by the company's P/E ratio over the last twelve months as of Q1 2024, which is closely aligned at 9.28.
One of the standout InvestingPro Tips for Federated Hermes is the company's consistent record of dividend payments, having maintained them for 27 consecutive years, which could be a significant factor for income-focused investors. Moreover, the company's cash flows have been robust enough to sufficiently cover interest payments, indicating financial stability and the potential to weather economic downturns.
From a growth perspective, Federated Hermes has experienced a revenue growth of 8.02% over the last twelve months as of Q1 2024, which may signal underlying business strength despite the reported equity net outflows. Additionally, the company's gross profit margin stands at an impressive 65.32%, reflecting efficient operations and cost management.
For those looking for more in-depth analysis, there are additional InvestingPro Tips available for Federated Hermes, which can be found at https://www.investing.com/pro/FHI. Use coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, and uncover more tips that can help refine your investment strategy.
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