06/26/2013

Another, More Predictable BEN

Another, more predictable BEN

By Paul Price

Market Shadows’ Virtual Put Selling Portfolio sold another put today. We sold one put contract of the Franklin Resources (BEN) Jan. 2014 $150 strike put for $19.40 per share.                       

Franklin Templeton Investments - logo

After pulling back more than $32 per share over the past month, BEN ($137.60) appears to be a gift. A return to even fifteen times forward estimates would support a 12-month goal of $174.

Over the latest decade, BEN’s earnings per share surged by about 474%. EPS rose from $1.98 in fiscal 2003 to an estimated $11.36 for the fiscal year (FY) ending September 30, 2013. Dividends expanded by 287% over that stretch.

At the current price, BEN is offered at 12.1x this year’s estimate, and 11.8x the Zacks FY 2014 estimate. That is cheap compared with its 10-year median multiple of 17x.

A secure 29-cent quarterly dividend provides a modicum of income at a 0.85% current yield.

 BEN 1-year (daily)

Maximum profit from selling the put would be $1,940 - the amount of the premium we collected. That would occur if BEN closes at $150 or above on January 17, 2014.

If Franklin Resources closes below $150 on the option expiration date, we will be obligated to purchase 100 shares at a net cost of $150 - $19.40 = $130.60 per share. (BEN is currently trading at $137.60, so $130.60 is a 5.1% discount.)

BEN Jan. 2014 put price 

That break-even price is exactly $7 below the stock's price of $137.60 at the time of our put sale. We were able to capture a price about mid-way between the bid - ask spread.

BEN could decline by up to 5.1% without causing a loss on this trade.

See our full Virtual Put Selling Portfolio here http://marketshadows.com/virtual-portfolios/put-selling-virtual-portfolio/.

 

Jun 26, 2013 12:00:00 AM | Appears on main page, Options, Value Investing

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I'm editor at Phil's Stock World, and editor for Stock World Weekly. My background is in the biological sciences, and law. After a brief career in the legal field, I changed directions and am now working as an editor, and very much enjoying my experiences in the editing world.

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