Franklin Resources (BEN) Stock Could Be 16% Undervalued On Cash Flow But Rich On Earnings
Franklin Resources has delivered a 43.0% total return over the past five years, yet valuation checks are split, with the intrinsic value estimate from the Excess Returns model pointing to upside while earnings based multiples suggest the stock is on the expensive side.
- A 43.0% five year return indicates that long term holders in Franklin Resources have already seen a meaningful gain, which can reduce the margin of safety for new buyers if fundamentals do not keep pace.
- Expectations for the company to keep converting its assets under management into steady cash flows can support the current share price, while any pressure on fees or sustained fund outflows may weigh on what investors are willing to pay.
- With a value score of 3 out of 6, Franklin Resources presents a mixed picture rather than a clear bargain or clear overvaluation.
The issue now is whether the current US$33.22 share price still leaves enough upside relative to the intrinsic value estimate to justify the risks investors are taking.
Is Franklin Resources Still Cheap on Excess Returns?
The Excess Returns model evaluates how effectively Franklin Resources converts shareholder equity into earnings above its estimated cost of equity. For Franklin Resources, the model uses a book value of $23.33 per share and a stable book value of $23.78 per share, which indicates a relatively steady capital base. A stable EPS input of $2.67 per share, based on weighted future return on equity estimates from four analysts, is set against an implied cost of equity of $1.95 per share.
This produces an excess return of $0.73 per share on an average return on equity of 11.24%. Using these inputs in the Excess Returns framework results in an intrinsic value estimate of $39.44 per share. With the stock trading at $33.22, Franklin Resources appears to be trading about 15.8% below this modelled value, indicating a gap between the current market price and the level suggested by these equity return assumptions.
On this Excess Returns view, Franklin Resources currently appears undervalued relative to its estimated intrinsic value.
Our Excess Returns analysis suggests Franklin Resources is undervalued by 15.8%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.
Has Franklin Resources Run Too Far on Earnings?
P/E is a useful way to look at Franklin Resources because earnings are a key driver of value for asset managers that convert fees into profit. At the current share price, Franklin Resources trades on a P/E of about 25.5x, compared with an industry average of roughly 39.7x for Capital Markets companies and a peer group average of about 56.4x.
The fair P/E ratio from this model is 16.5x. This reflects what investors might typically pay for Franklin Resources given its risk profile and industry position. The current 25.5x multiple sits well above that fair ratio, even if it is below the broader peer and industry averages. On this framework, the stock price already builds in a richer earnings valuation than the model suggests.
On the P/E multiple, Franklin Resources appears overvalued relative to the earnings level implied by this fair value benchmark.
See what the numbers say about this price — find out in our valuation breakdown.
The Franklin Resources Narrative: What Would Justify Today's Price?
Simply Wall St Narratives for Franklin Resources pick up where the valuation gap above leaves off and spell out what would need to happen to growth, margins and earnings for the stock to be worth meaningfully more or less than today’s price. Each Narrative lays out the specific assumptions behind its fair value view so you can track how those expectations compare with Franklin Resources' actual results over time.
Community views on Franklin Resources are split between confidence in new growth drivers and concern that legacy pressures still matter more.
Bull case: roughly fairly valued
"The company is actively expanding its presence in non-U.S. and emerging markets, now with $500 billion of AUM outside the US and new mandates in countries like Uzbekistan and Saudi Arabia, positioning Franklin Resources to benefit from the rising global wealth and the increasing allocation of institutional capital worldwide..."
Read the full Bull Case to see why Franklin Resources could be undervalued
Bear case: 38% overvalued
"The structural migration toward passive investing and exchange-traded funds has resulted in sustained outflows from traditional actively managed mutual funds, which account for a significant share of Franklin's legacy business. This trend will continue to erode both assets under management and fee income, pressuring revenue and earnings long-term..."
Read the full Bear Case to see why Franklin Resources could be overvalued
Do you think there's more to the story for Franklin Resources? Head over to our Community to see what others are saying!
The Bottom Line
For Franklin Resources, the Excess Returns intrinsic value estimate points to undervaluation, while the P/E view suggests the stock trades on a richer multiple than its fair ratio implies. The gap between those signals mainly reflects different assumptions about how reliably current earnings and equity can be turned into future cash flows versus how much growth and sentiment are already priced in. Broader checks sit in the middle, so this is not a straightforward bargain or clear stretch. The real swing factor from here is whether Franklin Resources can sustain attractive fee based earnings without seeing pressure from fund outflows and fee compression.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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