Shares of asset management company Franklin Resources Inc. (BEN, Financial) plunged more than 13% on Tuesday morning following the announcement of its preliminary quarterly results. The company's market value has fallen more than 20% this year. The stock appears to be undervalued based on the Peter Lynch earnings line.
Franklin Resources reported preliminary fourth-quarter and fiscal 2020 results that failed to meet analysts' expectations. The San Mateo, California-based company manages several investment funds, including equity funds, balanced funds and multi-asset mutual funds across the globe.
Highlights from recent quarterly results
For the quarter ended Sept. 30, Franklin reported an adjusted net income of $291 million, or earnings of 56 cents per share. This compares to an adjusted net income of $358.4 million, or 71 cents per share, reported in the prior-year quarter. Analysts were expecting a bottom line of 69 cents per share.
Franklin's revenue grew 20% to $1.7 billion from about $1.42 billion reported in the same period last year. The company noted the top-line growth was partly driven by an increase in management fees.
For the full year, it reported adjusted earnings of $2.61 per share, slightly below last year's figure of $2.62. Full-year revenue declined 2% to $5.566 billion from $5.669 billion in 2019.
The company's total assets under management had increased 105% to $1.4 billion as of Sept. 30.
Valuation
From a valuation perspective, shares of Franklin Resources currently trade at a trailing 12-month price-earnings ratio of about 9.77. This is significantly lower than the price-earnings ratios of close peers Invesco Ltd. (IVZ, Financial) and BlackRock Inc. (BLK, Financial), which trade at 13.77 and 21.10.
Looking ahead, Franklin's forward price-earnings ratio of 8.71 is slightly higher than Invesco's 7.75 but significantly lower than BlackRock's 18.32.
The company's forward dividend yield of about 4.73% from a payout ratio of 39% will also be a strong selling point for investors. Its peers trade at lower yields, with Invesco sporting a 4.5% forward dividend yield and BlackRock with a yield of 2.33%.
Conclusion
In summary, shares of Franklin Resources fell following its most recent quarterly results. This might have created a window of opportunity for value investors willing to look beyond today's pullback. The Peter Lynch earnings line suggests the stock could be undervalued.
Disclosure: No positions in the stocks mentioned.
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