Federated Hermes (FHI) Profit Margin Jump Reinforces Bull Case Despite Slower Growth Outlook

Federated Hermes (FHI) posted a net profit margin of 20.9% for the latest period, up from 15.9% the year before, and booked earnings growth of 43.2%, well ahead of its five-year average of 0.9% per year. Revenue and profit growth forecasts are softer, with revenue projected to grow at 3.1% annually and profit expected to increase by 1.8% per year, both trailing the broader US market. With shares changing hands at a P/E of 9.8x and trading below fair value estimates, investors may be encouraged by the combination of compelling value, solid margins, and several clear rewards, especially since no major risks have been flagged.

See our full analysis for Federated Hermes.

Now, let’s see how these headline results stack up against the dominant market narratives and investor expectations. Some long-standing views might get reinforced, while others could face a reality check.

See what the community is saying about Federated Hermes

Profit Margins Remain Strong

• Net profit margins are holding up at 20.9%, supported by high-quality earnings even as analysts expect these margins to slip just slightly to 20.5% over the next three years.
• Analysts' consensus view notes that Federated Hermes’ consistent margin strength supports the outlook for stable cash generation.
  • This is backed by demographic trends and ongoing demand for yield-focused products, which help maintain margin resilience.
  • Analysts expect these factors to offset competitive and regulatory challenges that could otherwise pressure profitability in this industry.
• For a deeper dive into how the consensus view interprets Federated Hermes' durable profitability, see the full narrative. 📊 Read the full Federated Hermes Consensus Narrative.

Share Count Set to Decline

• Analysts expect Federated Hermes to reduce its total shares outstanding by 5.14% per year for the next three years, potentially enhancing future earnings per share and investor returns.
• Analysts' consensus narrative highlights that this share reduction, combined with steady earnings, could amplify earnings-per-share growth.
  • This is especially relevant if revenue diversification through digital assets and alternative investments continues as planned.
  • The company is positioned favorably among peers as it boosts per-share value even with moderate topline growth.

Valuation Discount vs Peers

• Federated Hermes trades at a price-to-earnings ratio of 9.8x, below both its peer group average of 14.4x and the US Capital Markets industry average of 25.1x. The current price also remains beneath its DCF fair value of $54.72 per share, with the latest price at $48.48.
• According to the analysts' consensus, this valuation gap challenges any narrative that the stock is fully priced.
  • The current share price remains below both analyst consensus targets (at $52.14) and fair value models.
  • This supports the view that investors are being offered a meaningful discount relative to sector norms, despite muted growth forecasts.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Federated Hermes on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

Have a different take on the figures? Share your perspective and shape your own narrative in just a few minutes by using Do it your way.

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding Federated Hermes.

See What Else Is Out There

While Federated Hermes offers value, its muted growth forecasts and earnings expectations lag behind broader market trends and top industry peers.

If you want to focus on companies delivering consistent revenue and earnings gains even when growth is uncertain, our stable growth stocks screener (2088 results) will point you directly to proven long-term performers.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com