Franklin Resources Inc. Quarterly Valuation – November 2014 $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 5 Most Undervalued Companies for the Defensive Investor – November 2014. 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 specific look at how Franklin Resources (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 choices under the Franklin, Templeton, Mutual Series, Bissett, Fiduciary and Darby brand names. The Company operates in two segments: investment management and related services, and banking/finance. Its investment management and related services provides services to investment funds in jurisdictions globally, which include the United States- and non-the United States-registered open-end and closed-end funds, unregistered funds, and institutional, high net-worth and separately-managed accounts. Its banking/finance segment provides clients with select retail banking, private banking and consumer lending services through its banking and finance subsidiaries. In November 2012, it acquired a majority stake in K2 Advisors Holdings LLC.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion -Â PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â PASS
- Earnings Stability – positive earnings per share for at least 10 straight years -Â PASS
- Dividend Record – has paid a dividend for at least 10 straight years -Â PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -Â PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 -Â PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $57.04 |
| MG Value | $98.69 |
| MG Opinion | Undervalued |
| Value Based on 3% Growth | $47.58 |
| Value Based on 0% Growth | $27.89 |
| Market Implied Growth Rate | 4.44% |
| Net Current Asset Value (NCAV) | $12.32 |
| PEmg | 17.38 |
| Current Ratio | 10.19 |
| PB Ratio | 3.06 |
Balance Sheet – September 2014
| Current Assets | $12,436,000,000 |
| Current Liabilities | $1,220,000,000 |
| Total Debt | $2,149,000,000 |
| Total Assets | $16,357,000,000 |
| Intangible Assets | $2,326,000,000 |
| Total Liabilities | $4,773,000,000 |
| Outstanding Shares | 621,900,000 |
Earnings Per Share
| 2014 | $3.79 |
| 2013 | $3.37 |
| 2012 | $2.98 |
| 2011 | $2.87 |
| 2010 | $2.11 |
| 2009 | $1.28 |
| 2008 | $2.22 |
| 2007 | $2.34 |
| 2006 | $1.62 |
| 2005 | $1.35 |
| 2004 | $0.93 |
Earnings Per Share – ModernGraham
| 2014 | $3.28 |
| 2013 | $2.86 |
| 2012 | $2.50 |
| 2011 | $2.23 |
| 2010 | $1.91 |
| 2009 | $1.79 |
Dividend History
Conclusion:
Franklin Resources qualifies for the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the high PB ratio, but the Enterprising Investor has no initial concerns.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.91 in 2010 to $3.28 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.44% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.
Be sure to check out previous ModernGraham valuations of Franklin Resources Inc. (BEN) for a better perspective!
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Franklin Resources Inc. (BEN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclaimer:  The author did not hold a position in Franklin Resources Inc. (BEN) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
