Bailey Pemberton
4 min read
Franklin Templeton has delivered a strong multi year share price run, and the question now is whether the returns it earns on its capital are enough to support where the stock trades today.
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Over the past 3 years the stock has gained 61.4%, which puts the spotlight on whether that kind of share performance lines up with the returns the business is generating on the money it invests.
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Recent moves to launch equity ETFs with embedded Bitcoin exposure and to expand asset backed finance through Benefit Street Partners can influence how effectively Franklin Templeton puts capital to work and how variable those returns may be across cycles.
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Prefer to judge Franklin Templeton on earnings? See why Franklin Templeton’s 20.7x P/E tells a different valuation story.
The issue now is whether the current share price fairly reflects the returns Franklin Templeton is earning on its capital and the pattern of those returns over time.
If you want more ideas built around how effectively capital is being put to work, a focused stock screen is a useful next step, starting with 29 high quality undervalued stocks.
Does Franklin Templeton Look Undervalued on Excess Returns?
The Excess Returns model looks at how much profit Franklin Templeton can earn above its equity cost and what that is worth over time. In this framework, the Book Value is $23.13 per share, compared with a Stable Book Value estimate of $26.53 per share, and a Stable EPS of $3.22 per share based on analyst views of future return on equity. The implied Cost of Equity is $2.21 per share and the resulting Excess Return is $1.00 per share, supported by an Average Return on Equity of 12.12%.
This setup suggests Franklin Templeton is modeled as a business that can regularly earn more on its equity base than investors require, which can support a valuation above the current share price of $30.99. The recent filing for equity ETFs with embedded Bitcoin exposure helps explain why the market may be cautious about how consistent those excess returns will be through different market conditions, even though the Excess Returns model currently places Franklin Templeton’s estimated intrinsic value substantially above the current share price. Find out what Franklin Templeton could be worth using our Excess Returns estimate.
The Franklin Templeton Narrative: What Would Justify Today’s Price?
Franklin Templeton Narratives pick up where the valuation puzzle leaves off by explaining which assumptions on growth, margins and earnings would need to hold for the stock to be worth materially more or less than today’s price, and they sit on Simply Wall St’s Community page. Each one sets out Franklin Templeton’s implied fair value as a thesis about the business that you can revisit over time, rather than a one off snapshot.
