Despite the coronavirus outbreak-led chaos, it seems to be a wise idea to add Franklin Resources, Inc. BEN to your portfolio at the moment. The company’s prudent cost management and diversification strategies are impressive. Also, its relatively strong distribution platform and well-planned acquisitions are anticipated to yield positive results.
Franklin has a decent earnings surprise history. It beat the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 12.9%.
Also, the stock has been witnessing upward estimate revisions, reflecting analysts’ optimism about its prospects. Over the past 30 days, the Zacks Consensus Estimate for fiscal 2020 and 2021 increased 11.4% and 13.7%, respectively. Thus, it currently flaunts a Zacks Rank #1 (Strong Buy).
Shares of Franklin have lost 16.7% in the past six months compared with a 7.2% decline recorded by the industry.
Why Franklin is an Attractive Pick
Prudent Expense Management: In the three years ended 2017, Franklin reported continuous declines in expenses. While potential investments in the technology front escalated expenses in fiscal 2018 (3-5%), the same decline in fiscal 2019. Notably, expenses reduced in the first half of fiscal 2020 and management expects the same to decrease 5-7% year over year in 2020.
Solid Balance-Sheet Position: As of Mar 31, 2020, the company held a debt level of $1.3 billion, and its debt-capital ratio is currently 0.11 below the industry’s average of 0.41. Therefore, with a time-interest-earned ratio of 58.8X, which indicates the company's ability to meet its debt obligations based on current income, we believe Franklin carries a lower credit risk, and a lesser likelihood of default of interest and debt repayments if the economic situation worsens.
Strategic Acquisitions: Franklin’s solid capital position enables it to undertake inorganic growth initiatives. Notably, the company entered an all-cash acquisition deal with Legg Mason LM this February, per which Franklin will acquire the latter for $50.00 per share of common stock, accretive to earnings in fiscal 2021. Such acquisitions will support the company in improving and expanding its products and presence.
Steady Capital Deployment: Franklin returns sufficient capital to its shareholders through dividends and share repurchases. Notably, driven by a healthy liquidity position, the company has hiked its dividend every year since its inception in 1981, the latest being a 4% increase in December 2019. Furthermore, Franklin’s dividend payout and debt/equity ratios compare favorably with that of the broader industry, reflecting the fact that the dividends are sustainable in the future.
Undervalued Stock: With respect to the price/book and price/cash flow ratios, Franklin seems undervalued. It has a P/B ratio of 1 and a P/CF ratio of 7.51, both falling below the respective industry averages of 1.27 and 8.25.
The stock has a Value Score of A. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount.
Favorable VGM Score: Franklin has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), offer the best upside potential.
Other Stocks to Consider
Bank of Hawaii Corporation’s BOH 2020 earnings estimates have been revised 17.6% upward over the past 60 days. This Zacks Rank #2 company’s shares have lost 32.6% over the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings estimates for First Republic Bank FRC have moved 2.3% north over the past 60 days for the ongoing year. The company’s shares have declined 7.9% over the past six months. It carries a Zacks Rank of 2 at present.
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Franklin Resources, Inc. (BEN) : Free Stock Analysis Report
Legg Mason, Inc. (LM) : Free Stock Analysis Report
First Republic Bank (FRC) : Free Stock Analysis Report
Bank of Hawaii Corporation (BOH) : Free Stock Analysis Report
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