Financial Services Stocks

Franklin Resources Inc Valuation – August 2016 $BEN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Franklin Resources Inc (BEN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Franklin Resources, Inc. (Franklin), is a holding company. Franklin together with its various subsidiaries (collectively, the Company), is referred to as Franklin Templeton Investments, is a global investment management organization offering investment management and related services under the Franklin, Templeton, Mutual Series, Bissett, Fiduciary and Darby brand names. It provides services to investment funds in jurisdictions globally, which include the United States- and non- United States-registered open-end and closed-end funds, unregistered funds, and institutional, high net-worth and separately-managed accounts. The Company’s investment management and related services include fund administration, shareholder services, transfer agency, underwriting, distribution, custodial, trustee and other fiduciary services. Its sponsored investment products include a range of equity, hybrid, fixed-income and cash management funds and accounts, including alternative investment products.

BEN Chart

BEN data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BEN – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $21,417,599,621 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 13.07 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 68.06% Pass
6. Moderate PEmg Ratio PEmg < 20 11.51 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.81 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 13.07 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.19 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

BEN value chart August 2016

EPSmg $3.20
MG Growth Estimate 4.20%
MG Value $54.08
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $46.40
MG Value based on 0% Growth $27.20
Market Implied Growth Rate 1.50%
Current Price $36.82
% of Intrinsic Value 68.08%

Franklin Resources, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.5 in 2012 to an estimated $3.2 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.5% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Franklin Resources, Inc. revealed the company was trading above its Graham Number of $35.55. The company pays a dividend of $0.69 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 11.51, which was below the industry average of 19.87, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $14.41.

Franklin Resources, Inc. fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

BEN charts August 2016

Net Current Asset Value (NCAV) $14.41
Graham Number $35.55
PEmg 11.51
Current Ratio 13.07
PB Ratio 1.81
Current Dividend $0.69
Dividend Yield 1.87%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $12,556,900,000
Total Current Liabilities $961,100,000
Long-Term Debt $2,163,800,000
Total Assets $15,997,500,000
Intangible Assets $2,213,500,000
Total Liabilities $4,215,400,000
Shares Outstanding (Diluted Average) 578,900,000

Earnings Per Share History

Next Fiscal Year Estimate $2.75
Sep2015 $3.29
Sep2014 $3.79
Sep2013 $3.37
Sep2012 $2.98
Sep2011 $2.87
Sep2010 $2.11
Sep2009 $1.28
Sep2008 $2.22
Sep2007 $2.34
Sep2006 $1.62
Sep2005 $1.35
Sep2004 $0.92
Sep2003 $0.66
Sep2002 $0.55
Sep2001 $0.64
Sep2000 $0.76
Sep1999 $0.56
Sep1998 $0.66
Sep1997 $0.57
Sep1996 $0.83

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.20
Sep2015 $3.37
Sep2014 $3.28
Sep2013 $2.86
Sep2012 $2.50
Sep2011 $2.23
Sep2010 $1.91
Sep2009 $1.80
Sep2008 $1.93
Sep2007 $1.65
Sep2006 $1.21
Sep2005 $0.94
Sep2004 $0.73
Sep2003 $0.63
Sep2002 $0.63
Sep2001 $0.65
Sep2000 $0.67

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – August 2016
Dividend Growth Stocks for Intelligent Investors – July 2016
10 Low PE Stocks for the Defensive Investor – July 2016
Dividend Growth Stocks for Intelligent Investors – June 2016
10 Low PE Stocks for the Defensive Investor – June 2016

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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