Intrinsic value of Federated Investors, Inc. - FII

Previous Close

$32.41

  Intrinsic Value

$66.57

stock screener

  Rating & Target

str. buy

+105%

Previous close

$32.41

 
Intrinsic value

$66.57

 
Up/down potential

+105%

 
Rating

str. buy

Our model is not good at valuating stocks of financial companies, such as FII.

We calculate the intrinsic value of FII stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.40
  9.86
  9.37
  8.94
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
Revenue, $m
  1,254
  1,378
  1,507
  1,642
  1,782
  1,928
  2,079
  2,237
  2,401
  2,571
  2,748
  2,932
  3,124
  3,323
  3,530
  3,746
  3,970
  4,205
  4,449
  4,704
  4,970
  5,248
  5,538
  5,841
  6,159
  6,491
  6,838
  7,201
  7,581
  7,980
Variable operating expenses, $m
  853
  926
  1,002
  1,082
  1,164
  1,250
  1,339
  1,432
  1,529
  1,629
  1,618
  1,727
  1,839
  1,957
  2,079
  2,206
  2,338
  2,476
  2,620
  2,770
  2,927
  3,090
  3,261
  3,440
  3,627
  3,822
  4,026
  4,240
  4,464
  4,699
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  853
  926
  1,002
  1,082
  1,164
  1,250
  1,339
  1,432
  1,529
  1,629
  1,618
  1,727
  1,839
  1,957
  2,079
  2,206
  2,338
  2,476
  2,620
  2,770
  2,927
  3,090
  3,261
  3,440
  3,627
  3,822
  4,026
  4,240
  4,464
  4,699
Operating income, $m
  401
  452
  505
  560
  618
  678
  740
  805
  872
  942
  1,130
  1,206
  1,284
  1,366
  1,451
  1,540
  1,632
  1,729
  1,829
  1,934
  2,043
  2,158
  2,277
  2,402
  2,532
  2,669
  2,811
  2,961
  3,117
  3,281
EBITDA, $m
  535
  587
  642
  700
  760
  822
  887
  954
  1,024
  1,096
  1,172
  1,250
  1,332
  1,416
  1,505
  1,597
  1,693
  1,792
  1,897
  2,005
  2,119
  2,237
  2,361
  2,490
  2,626
  2,767
  2,915
  3,070
  3,232
  3,402
Interest expense (income), $m
  3
  7
  11
  15
  19
  24
  28
  33
  38
  43
  49
  54
  60
  66
  72
  79
  85
  92
  100
  107
  115
  124
  132
  141
  151
  161
  171
  182
  193
  205
  218
Earnings before tax, $m
  393
  440
  490
  541
  594
  649
  707
  767
  829
  894
  1,076
  1,146
  1,218
  1,294
  1,373
  1,455
  1,540
  1,629
  1,722
  1,819
  1,920
  2,025
  2,136
  2,251
  2,371
  2,497
  2,629
  2,767
  2,912
  3,063
Tax expense, $m
  106
  119
  132
  146
  160
  175
  191
  207
  224
  241
  290
  309
  329
  349
  371
  393
  416
  440
  465
  491
  518
  547
  577
  608
  640
  674
  710
  747
  786
  827
Net income, $m
  287
  322
  357
  395
  434
  474
  516
  560
  605
  652
  785
  836
  889
  945
  1,002
  1,062
  1,124
  1,189
  1,257
  1,328
  1,401
  1,478
  1,559
  1,643
  1,731
  1,823
  1,919
  2,020
  2,126
  2,236

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,695
  1,862
  2,036
  2,218
  2,408
  2,605
  2,810
  3,023
  3,245
  3,475
  3,714
  3,963
  4,221
  4,490
  4,770
  5,062
  5,365
  5,682
  6,012
  6,357
  6,716
  7,092
  7,484
  7,894
  8,323
  8,771
  9,240
  9,731
  10,245
  10,784
Adjusted assets (=assets-cash), $m
  1,695
  1,862
  2,036
  2,218
  2,408
  2,605
  2,810
  3,023
  3,245
  3,475
  3,714
  3,963
  4,221
  4,490
  4,770
  5,062
  5,365
  5,682
  6,012
  6,357
  6,716
  7,092
  7,484
  7,894
  8,323
  8,771
  9,240
  9,731
  10,245
  10,784
Revenue / Adjusted assets
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
Average production assets, $m
  571
  627
  686
  747
  811
  877
  946
  1,018
  1,092
  1,170
  1,250
  1,334
  1,421
  1,512
  1,606
  1,704
  1,807
  1,913
  2,024
  2,140
  2,261
  2,388
  2,520
  2,658
  2,802
  2,953
  3,111
  3,276
  3,450
  3,631
Working capital, $m
  -74
  -81
  -89
  -97
  -105
  -114
  -123
  -132
  -142
  -152
  -162
  -173
  -184
  -196
  -208
  -221
  -234
  -248
  -262
  -278
  -293
  -310
  -327
  -345
  -363
  -383
  -403
  -425
  -447
  -471
Total debt, $m
  206
  281
  359
  440
  525
  613
  705
  800
  899
  1,002
  1,109
  1,220
  1,335
  1,456
  1,581
  1,711
  1,847
  1,988
  2,136
  2,290
  2,451
  2,618
  2,794
  2,977
  3,169
  3,369
  3,579
  3,798
  4,028
  4,269
Total liabilities, $m
  758
  832
  910
  992
  1,076
  1,164
  1,256
  1,351
  1,450
  1,553
  1,660
  1,771
  1,887
  2,007
  2,132
  2,263
  2,398
  2,540
  2,687
  2,841
  3,002
  3,170
  3,345
  3,529
  3,720
  3,921
  4,130
  4,350
  4,580
  4,820
Total equity, $m
  937
  1,030
  1,126
  1,227
  1,332
  1,441
  1,554
  1,672
  1,794
  1,922
  2,054
  2,191
  2,334
  2,483
  2,638
  2,799
  2,967
  3,142
  3,325
  3,515
  3,714
  3,922
  4,139
  4,365
  4,602
  4,850
  5,110
  5,381
  5,666
  5,963
Total liabilities and equity, $m
  1,695
  1,862
  2,036
  2,219
  2,408
  2,605
  2,810
  3,023
  3,244
  3,475
  3,714
  3,962
  4,221
  4,490
  4,770
  5,062
  5,365
  5,682
  6,012
  6,356
  6,716
  7,092
  7,484
  7,894
  8,322
  8,771
  9,240
  9,731
  10,246
  10,783
Debt-to-equity ratio
  0.220
  0.270
  0.320
  0.360
  0.390
  0.430
  0.450
  0.480
  0.500
  0.520
  0.540
  0.560
  0.570
  0.590
  0.600
  0.610
  0.620
  0.630
  0.640
  0.650
  0.660
  0.670
  0.680
  0.680
  0.690
  0.690
  0.700
  0.710
  0.710
  0.720
Adjusted equity ratio
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  287
  322
  357
  395
  434
  474
  516
  560
  605
  652
  785
  836
  889
  945
  1,002
  1,062
  1,124
  1,189
  1,257
  1,328
  1,401
  1,478
  1,559
  1,643
  1,731
  1,823
  1,919
  2,020
  2,126
  2,236
Depreciation, amort., depletion, $m
  134
  136
  138
  140
  142
  144
  146
  149
  151
  154
  42
  44
  47
  50
  54
  57
  60
  64
  67
  71
  75
  80
  84
  89
  93
  98
  104
  109
  115
  121
Funds from operations, $m
  421
  457
  495
  534
  576
  618
  663
  709
  757
  806
  827
  881
  937
  995
  1,056
  1,119
  1,184
  1,253
  1,324
  1,399
  1,477
  1,558
  1,643
  1,732
  1,825
  1,922
  2,023
  2,129
  2,241
  2,357
Change in working capital, $m
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -24
Cash from operations, $m
  428
  465
  503
  542
  584
  627
  671
  718
  766
  816
  838
  892
  948
  1,007
  1,068
  1,131
  1,198
  1,267
  1,339
  1,414
  1,492
  1,574
  1,660
  1,750
  1,843
  1,941
  2,044
  2,151
  2,263
  2,381
Maintenance CAPEX, $m
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -32
  -34
  -36
  -39
  -42
  -44
  -47
  -50
  -54
  -57
  -60
  -64
  -67
  -71
  -75
  -80
  -84
  -89
  -93
  -98
  -104
  -109
  -115
New CAPEX, $m
  -54
  -56
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -77
  -81
  -84
  -87
  -91
  -94
  -98
  -102
  -107
  -111
  -116
  -121
  -126
  -132
  -138
  -144
  -151
  -158
  -165
  -173
  -181
Cash from investing activities, $m
  -71
  -75
  -80
  -84
  -89
  -93
  -98
  -104
  -109
  -113
  -120
  -126
  -131
  -138
  -144
  -152
  -159
  -167
  -175
  -183
  -192
  -201
  -212
  -222
  -233
  -244
  -256
  -269
  -282
  -296
Free cash flow, $m
  357
  389
  423
  458
  495
  533
  573
  615
  658
  702
  718
  766
  817
  869
  923
  980
  1,039
  1,100
  1,164
  1,231
  1,300
  1,373
  1,448
  1,528
  1,610
  1,697
  1,787
  1,882
  1,981
  2,085
Issuance/(repayment) of debt, $m
  71
  75
  78
  81
  85
  88
  92
  95
  99
  103
  107
  111
  116
  120
  125
  130
  136
  142
  148
  154
  161
  168
  175
  183
  192
  200
  210
  219
  230
  241
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  71
  75
  78
  81
  85
  88
  92
  95
  99
  103
  107
  111
  116
  120
  125
  130
  136
  142
  148
  154
  161
  168
  175
  183
  192
  200
  210
  219
  230
  241
Total cash flow (excl. dividends), $m
  429
  464
  501
  540
  580
  622
  665
  710
  757
  805
  825
  877
  932
  989
  1,048
  1,110
  1,174
  1,241
  1,311
  1,384
  1,461
  1,540
  1,624
  1,711
  1,802
  1,897
  1,997
  2,101
  2,211
  2,325
Retained Cash Flow (-), $m
  -89
  -92
  -97
  -101
  -105
  -109
  -113
  -118
  -122
  -127
  -132
  -137
  -143
  -149
  -155
  -161
  -168
  -175
  -183
  -190
  -199
  -208
  -217
  -227
  -237
  -248
  -259
  -272
  -284
  -298
Prev. year cash balance distribution, $m
  9
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  348
  372
  405
  439
  475
  512
  551
  592
  634
  678
  693
  740
  789
  840
  893
  949
  1,006
  1,066
  1,129
  1,194
  1,262
  1,333
  1,407
  1,484
  1,565
  1,649
  1,737
  1,830
  1,926
  2,027
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  334
  340
  352
  361
  368
  372
  373
  370
  364
  356
  329
  316
  300
  282
  262
  241
  219
  196
  174
  152
  131
  111
  92
  76
  61
  48
  37
  28
  21
  15
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Federated Investors, Inc. (Federated) is a provider of investment management products and related financial services. Federated operates through investment management business segment. It is engaged in sponsoring, marketing and providing investment-related services to various investment products, including mutual funds and Separate Accounts, which include separately managed accounts, institutional accounts, sub-advised funds and other managed products. It operates in one segment, the investment management business. As of December 31, 2016, Federated provided investment advisory services to 124 sponsored investment companies and other funds (Federated Funds). It markets these funds to banks, brokers and dealers and other financial intermediaries using them to meet the needs of their customers and clients, including retail investors, corporations and retirement plans. The Company offers a range of products and strategies, including money market, equity and fixed-income investments.

FINANCIAL RATIOS  of  Federated Investors, Inc. (FII)

Valuation Ratios
P/E Ratio 15.8
Price to Sales 2.9
Price to Book 5.6
Price to Tangible Book
Price to Cash Flow 13.1
Price to Free Cash Flow 13.8
Growth Rates
Sales Growth Rate 23.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 116.7%
Cap. Spend. - 3 Yr. Gr. Rate 5.4%
Financial Strength
Quick Ratio 12
Current Ratio 0
LT Debt to Equity 27.7%
Total Debt to Equity 32.1%
Interest Coverage 115
Management Effectiveness
Return On Assets 18%
Ret/ On Assets - 3 Yr. Avg. 15.5%
Return On Total Capital 25.3%
Ret/ On T. Cap. - 3 Yr. Avg. 20.9%
Return On Equity 33.6%
Return On Equity - 3 Yr. Avg. 28.7%
Asset Turnover 1
Profitability Ratios
Gross Margin 97.6%
Gross Margin - 3 Yr. Avg. 97%
EBITDA Margin 31%
EBITDA Margin - 3 Yr. Avg. 30.8%
Operating Margin 29.3%
Oper. Margin - 3 Yr. Avg. 29.1%
Pre-Tax Margin 29.8%
Pre-Tax Margin - 3 Yr. Avg. 29.1%
Net Profit Margin 18.3%
Net Profit Margin - 3 Yr. Avg. 18%
Effective Tax Rate 34.9%
Eff/ Tax Rate - 3 Yr. Avg. 36.5%
Payout Ratio 98.1%

FII stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FII stock intrinsic value calculation we used $1136 million for the last fiscal year's total revenue generated by Federated Investors, Inc.. The default revenue input number comes from 0001 income statement of Federated Investors, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our FII stock valuation model: a) initial revenue growth rate of 10.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for FII is calculated based on our internal credit rating of Federated Investors, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Federated Investors, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of FII stock the variable cost ratio is equal to 69%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for FII stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Federated Investors, Inc..

Corporate tax rate of 27% is the nominal tax rate for Federated Investors, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the FII stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for FII are equal to 45.5%.

Life of production assets of 49.3 years is the average useful life of capital assets used in Federated Investors, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for FII is equal to -5.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $857.121 million for Federated Investors, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 100.840 million for Federated Investors, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Federated Investors, Inc. at the current share price and the inputted number of shares is $3.3 billion.

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