J.P Morgan Comments On Federated Investors Following Earnings Miss

Federated Investors FII reported 4Q10 EPS of $0.45, and $0.47 excluding a tax impairment charge. This exceeded the consensus of $0.43, but the results included $0.03 benefit from a change to management compensation accruals and like other asset managers had a bigger than typical below the line investment gain of $4 million or $0.03 per share. The earnings were slightly below J.P Morgan's expectations. Federated reported $12.3 million of fee waivers in the quarter, up from $11.2 million in 3Q10, and consistent with Schwab that also reported an increase in fee waivers for the quarter. J.P Morgan believes fee waivers rose in part due to slightly higher money fund AUM and falling security yields in the quarter. Management is bullish about the outlook for money fund fee waivers. Debbie Cunningham, FII's highly respected CIO of its money fund business is bullish both about the near term prospects for money fund yields, with a recent steepening at the short end of the yield curve, and for the long term given expectations for Fed tightening by year end 2011. J.P Morgan has a $23.50 PT and Underweight rating on FII FII closed Friday at $27.42