With prudent cost management and strong diversification strategies, Franklin Resources, Inc. (BEN - Free Report) appears a solid bet now. The company’s relatively strong distribution platform and consistent well-planned acquisitions are anticipated to yield positive results for the stock.
Though expenses might escalate for Franklin due to the strictly regulated nature of investment management business and potential investments in the technology, sharper focus on organic growth is expected to make the growth path smoother for the company.
During the Q4 earnings season, the Finance sector performed well. Despite inflation-related issues and heightening chances of political uncertainty, easing margin pressure, consumer loan growth, tax benefits from the tax reform and controlled expenses helped most finance stocks to perform well. So, we thought of bringing up a stock from the sector that reflects strong fundamentals and solid long-term growth opportunities.
Particularly, Franklin is one such stock that not only beat estimates this time, but has also been witnessing upward estimate revisions, reflecting analysts’ optimism about its future prospects. Over the last 30 days, the Zacks Consensus Estimate for fiscal 2018 and 2019 increased 3.5% and 2.1%, respectively.
Though shares of this Zacks Rank #2 (Buy) stock have declined 9.4% in the last six months, compared with 8.7% growth recorded by the industry, Franklin has a number of other aspects that make it an attractive investment option.
Why Franklin is an Attractive Pick
Prudent Expense Management: Franklin recorded 7%, 14% and 3% declines in operating expenses in fiscals 2015, 2016 and 2017, respectively. While potential investments in the technology front might escalate expenses in fiscal 2018 (3-5%), previous cost-cutting initiatives will likely improve the top line in the near term..
Steady Capital Deployment: Franklin returns sufficient capital to its shareholders through dividends and share repurchases. Notably, the company adopted a new stock trading plan under Rule 10b5-1 in March 2015 to facilitate share buyback under its current repurchase program. In June 2016, it announced an additional repurchase authorization of up to 50 million shares. Moreover, driven by a healthy liquidity position, the company has hiked its dividend every year since its inception in 1981, the latest being the 15% increase in December 2017. The company had also paid a special cash dividend of 50 cents per share in January 2015.
Leverage: Franklin’s debt/equity ratio comes in at 0.09 against the S&P 500 average of 0.69, reflecting lower debt burden compared with the industry. It highlights the company’s sound financial flexibility.
Superior Return on Equity (ROE): Franklin’s ROE of 13.88%, as compared with the industry average of 13.45%, indicates the company’s commendable position over its peers.
Stock is Undervalued: Franklin has P/CF and P/B ratios of 11.65 and 1.77 compared to the industry average of 12.03 and 1.80, respectively. Based on these ratios, the stock seems undervalued.
Stocks to Consider
Shares of Apollo Global Management, LLC (APO - Free Report) , which sports a Zacks Rank #1 (Strong Buy), gained more than 12% over the past six months. The Zacks Consensus Estimate for the stock climbed nearly 3% to $3.10, over the last 30 days, for 2018. You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Ameriprise Financial, Inc. (AMP - Free Report) rallied more than 7% in six months’ time. The Zacks Consensus Estimate for the stock climbed 5.6% to $14.43, over the past 30 days, for 2018. It carries a Zacks Rank #2.
Shares of Lazard Ltd. (LAZ - Free Report) appreciated more than 22% in the last six months. The Zacks Consensus Estimate for the stock climbed 3.1% to $3.99, over the last 30 days, for 2018. The stock has a Zacks Rank #2, at present.
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