Federated Investors (FII) faces headwinds due to continued low interest rates and headline risk from SEC policy change proposals, leading Jason Weyeneth, Lead Analyst at Sterne Agee & Leach, Inc., to rate the stock an “underperform” among investment management products and services.
“As a money market fund provider with interest rates as low as they are, Federated has to waive a sizable portion of fees in order to keep the returns above zero for their money market fund investors, and it seems pretty clear from what’s going on from a macro standpoint and from Fed commentary that short-term interest rates are going to remain low for the foreseeable future, which will drive continued earnings pressure for Federated of roughly $0.10 to $0.12 per quarter, so it’s a material earnings headwind,” Weyeneth said.
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Weyeneth says the headline risk stemming from the proposal of reform implementation may have a negative impact on the stock. He says he doesn’t think the SEC will implement reforms that will have a negative impact on FII‘s business model, but the headlines are enough to pose risk and repel some investors.
“I think we’re certainly going to see a proposal of some sort from the SEC, which could include aspects that would appear to be detrimental to their business model if passed. I don’t think they ultimately get passed, but I don’t want to own the stock in the face of what’s likely to be some negative regulatory headlines later in the year,” Weyeneth said.
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