Franklin Resources (BEN): Mixed Quarter, Valuation Still Not Good Enough

S&P 500 dividend stocks have cratered compared to the broad market. After peaking at the onset of the year, the factor is down about 13 percentage points on SPY when analyzing the performance of the SPDR S&P Dividend ETF (SDY) and the SPX. Among the high-yielders is Franklin Resources (NYSE:BEN). I have a hold rating on the company for weak asset flows (bearish) but also recovering market conditions (bullish), though its chart leans negative.

Dividend Stocks Decline Vs. The S&P 500

The California-based $12.3 billion market cap Asset Management and Custody Banks industry company within the Financials sector trades at a low 14.8 trailing 12-month GAAP price-to-earnings ratio and pays a high 4.9% dividend yield, according to The Wall Street Journal.

According to Bank of America Global Research, BEN is a global asset manager with over $1.3Tn in AUM, over 10,000 employees globally, and a presence in six continents. BEN provides investment management services to retail, institutional, and high-net-worth clients globally with capabilities across all asset classes including equities, fixed income, multi-asset, alternatives, and money markets.

Earlier this month, BEN issued Q1 results that had something for the bulls and bears. While revenue fell 7.7% year-on-year, EPS verified above Wall Street expectations due to better net flows across long-term asset classes. Outflows summed to $3.7 billion, better than the nearly $11 billion of outflows reported in the same quarter a year ago. AUM ended Q1 sequentially higher at $1.42 trillion vs. $1.39 trillion in Q4. Then later in the month, Franklin issued its April AUM update, which showed flat asset growth compared to the end of March.

On valuation, analysts at BofA see earnings falling sharply this year before EPS growth returns in 2024 and 2025. The Bloomberg consensus forecast is about on par with what BofA sees. Dividends, meanwhile, are expected to rise at a continued steady pace over the coming quarters. With low earnings multiples following weak share price performance over the past two years, BEN appears to be a compelling value case, but a soft growth outlook is a headwind for the bulls.

Franklin Resources: Earnings, Valuation, Dividend Forecasts

Franklin trades at 13.1 times next year’s earnings, but that is 10% above its 5-year average multiple. On a price-to-book basis, shares look like a better deal at just 1.0x compared to a long-term mean closer to 1.3x. If we apply a P/E closer to the sector median and $2.50 of NTM earnings, then shares should be in the mid-$20s, which is where it trades today. Its next earnings date is slated for July 27 and the next dividend date is June 29.

BEN: Mixed Valuation Metrics, An Above-Sector P/E

The Technical Take

I was neutral on BEN last year due to the lukewarm valuation and poor chart. Notice in the chart below that the share surged from the October low through an early February peak. It was a near-double, but those gains were fleeting. BEN tumbled amid broader Financials sector distress over the back half of Q1. A failed rally to resistance earlier this month leaves the chart vulnerable for further downside.

I spot a bearish head and shoulders pattern, with two shoulders near $28.50 and the head at the 52-week high north of $34. A neckline breakdown a few weeks ago triggered the bearish pattern. What’s more, take a look at the RSI momentum reading at the top of the graph – it confirms a new YTD low in price. I see support at the October low of around $20 – that is also the middle ground of where the stock traded in 2020.

BEN: Bearish Head And Shoulders With RSI Confirmation

The Bottom Line

I reiterate my hold rating on BEN. The valuation is neutral, and the chart leans bearish. The upside case is that asset prices have recovered, but the company has much to prove.