Franklin Resources Inc (BEN, Financial) experienced a daily gain of 4.03%, with an Earnings Per Share (EPS) of $1.66 as of July 28, 2023. The question that arises is whether the stock is fairly valued. This article aims to provide a comprehensive valuation analysis of Franklin Resources (BEN) to answer this question. Read on for an in-depth exploration.
A Snapshot of Franklin Resources Inc
Franklin Resources provides investment services for individual and institutional investors. As of June 2023, the company manages $1.432 trillion in assets, primarily composed of equity (32%), fixed-income (35%), multi-asset/balanced (10%) funds, alternatives (18%), and money market funds (5%). Franklin Resources is one of the more global U.S.-based asset managers, with more than a third of its assets under management invested in global/international strategies and 28% of managed assets sourced from clients domiciled outside the United States.
As of July 28, 2023, Franklin Resources' stock price is $29.56, with a market cap of $14.8 billion. When compared to the company's GF Value, an estimation of fair value, the stock appears to be fairly valued.
Understanding the GF Value of Franklin Resources
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. This value is computed using three key factors: historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides a snapshot of the ideal fair trading value of a stock.
According to GuruFocus Value calculation, Franklin Resources (BEN, Financial) appears to be fairly valued. This implies that the long-term return of its stock is likely to be close to the rate of its business growth. If the price of a stock is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
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Financial Strength of Franklin Resources
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. Franklin Resources has a cash-to-debt ratio of 0.39, which ranks worse than 70.54% of companies in the Asset Management industry. Based on this, GuruFocus ranks Franklin Resources's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Franklin Resources
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Franklin Resources has been profitable in 10 of the past 10 years. Over the past twelve months, the company had a revenue of $7.9 billion and an Earnings Per Share (EPS) of $1.66. Its operating margin is 15.29%, which ranks better than 54.96% of companies in the Asset Management industry. Overall, GuruFocus ranks the profitability of Franklin Resources at 8 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth of Franklin Resources is 14.6%, which ranks better than 65.62% of companies in the Asset Management industry. However, the 3-year average EBITDA growth rate is 8.8%, which ranks worse than 52.46% of companies in the Asset Management industry.
ROIC vs WACC of Franklin Resources
Return on invested capital (ROIC) and Weighted Average Cost of Capital (WACC) are essential metrics for determining a company's profitability. For the past 12 months, Franklin Resources's ROIC is 3.92, and its WACC is 7.89. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders.
Conclusion
In conclusion, the stock of Franklin Resources appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 52.46% of companies in the Asset Management industry. To learn more about Franklin Resources stock, you can check out its 30-Year Financials here.
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