Market Perform - Price 22.42 on Dec. 9
by Friedman, Billings, Ramsey

Target: 24. With most of the major equity indexes down between 22% and 30% during the current quarter, the asset-manager business model is facing unprecedented stress. Taking market conditions into account, along with individual manager performance and client outflows, we forecast an average sequential decline in [assets under management] of 14.7% during the December quarter, which is driving an estimated decline of 15.5% in total revenues, on average. The modern-day fund industry has never faced such a rapid, precipitous drop in revenues, and our expectation of an average year-over-year decline in total revenues of 16.2% in '09 suggests that the challenges will persist into next year. Given the...decline in industry revenues and the limited recourse available to managers aiming to cut costs, we remain cautious on the industry group and await more clear evidence that a trough in earnings is in sight before we can turn more positive on the group. Market cap: $2.3 billion.

The asset manager’s “solid financial position allowed the board to declare the special dividend to return additional value to shareholders," the investment manager said in a statement.

Federated also plans a new share repurchase program of as many as 5 million additional shares. The existing program has about 2.8 shares remaining and terminates at the end of 2008.

ASSET MANAGERS: Federated Investors (FII), Janus Capital Group (JNS)

Federated Investors (FII) was upgraded from Neutral to Buy at Merrill Lynch. Estimates also raised, based on higher expected equity and fixed income growth. $40 price target.

Goldman Sachs said it is downgrading Federated Investors (FII) to Neutral from Buy based on less defensive stance on asset managers. Also see increased fee competition for money market funds and concerns over SIV exposure as potential negatives. Target lowered to $43 from $45.

Federated Investors (FII) was downgraded at UBS. Rating lowered to Neutral from Buy. Target price lowered to $44 from $46. Reiterates 2008 EPS estimates of $2.62.

Federated Investors (FII) was upgraded to Buy rating from Neutral at UBS. Price target and FY 2008 eps estimates hold at $44 and $2.65.

Federated Investors (FII) was upgraded to Neutral at JP Morgan. Commercial paper market concerns are overblown for high-quality managers like Federated.

Downgraded by JP Morgan from Neutral to Underweight

Downgraded by Keefe Bruyette from Outperform to Mkt Perform