Frankly, Been There, Done That
By Paul Price of Market Shadows
Sometimes, obvious is best. Money management firm Franklin Resources (BEN) has been a huge money maker over the long term. It has a cash-rich balance sheet and a wonderful business model.
Despite the impact from the Crash of 2008, BEN’s earnings per share surged by 410% in the decade from 2003 – 2013 as they lept from $0.66 to $3.37 (fiscal years end Sep. 30th). Today’s fiscal Q2 earnings report was just a penny shy of estimates ($0.89 versus the $0.90 consensus view) but the stock sold off by more than 2% intra-day.
On Monday afternoon BEN was trading more than $7 below its 2014 high of $58.87. The market seems to have overreacted. For the record, first half EPS totaled $1.85 versus $1.71 a year ago. Trailing 12-month profits have never been higher.
The well-covered dividend was increased twice in the past 12-months. The quarterly rate has climbed by 25% since the middle of 2012.
Franklin Templeton’s relative P/E hasn’t registered this low in decades. BEN’s nominal P/E averaged 15.2x in the full seven year period from 2007 through 2013, which spanned both bull and bear market conditions. The stock sells for around 13.7x current fiscal year estimates and just 12.5x next year’s projections of about $4.10 to $4.13.
The company’s record fundamentals are not being reflected in the current share price. During times when the market mood was more upbeat BEN often sold for 17 – 20x multiples (see chart).
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