John Buckingham is a leading value investor and money manager; in his newsletter, The Prudent Specul...
AdvisorEngine Revs up Franklin Resources
07/14/2020 5:00 am EST
Franklin Resources (BEN) was founded in 1947 and named after Benjamin Franklin; today, the company manages the Franklin and Templeton families of funds, observes Ben Reynolds, editor of Sure Dividend.
Franklin Resources has a market capitalization of approximately $10 billion, and nearly $600 billion in assets under management (AUM) as of the end of the fiscal second quarter.
Competitive advantages are difficult to achieve in the asset management industry, but Franklin Resources has established itself with a long and successful track record of industry outperformance. We believe Franklin Resources retains multiple catalysts for future growth.
First, as the U.S. population ages, the need for retirement planning services will be higher than ever. Franklin Resources will also be able to grow AUM through acquisitions, such as the recent $4.5 billion acquisition of Legg Mason, which had AUM of over $800 billion as of January 31st, 2020.
The deal presents significant cost synergies, as Franklin Resources expects to generate approximately $200 million in annual cost savings. More recently, Franklin Resources acquired AdvisorEngine, a digital wealth platform that provides technology and consulting services to over 1,200 financial advisory firms in the United States.
We expect Franklin Resources to generate adjusted earnings-per-share of $2.00 for 2020. However, this year is expected to be an anomaly, with a short-term downturn caused by the coronavirus. Our estimate of the company’s true earnings power is for adjusted EPS of $2.50 for 2020.
Based on this, the stock trades for a price-to-earnings ratio (P/E) of 8.1, below our fair value estimate of 10. Expansion of the P/E multiple could increase annual returns by 4.3% through 2025.
Combining valuation changes with 4.0% expected annual earnings growth and the 5.3% dividend yield, we expect total returns of 13.6% per year for Franklin Resources stock over the next five years.
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