Franklin Resources, Inc.BENNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $49.05 per share(market-calibrated)

+83.1%

Upside to Fair Value

Current

$26.79

Pure Model

$54.86

Fair Value

$49.05

Bull Case

$70.35

Bear Case

$40.92

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $54.86.

What's Driving This Ratingfor BEN

✓

CapEx already efficient

CapEx at 1.48% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 18.33% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.4B (25.46% margin).

→

Moderate revenue growth

Analyst consensus projects -20.55% revenue growth, fading to 2.50% by Year 10. Revenue reaches $9.6B (vs $8.8B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $68.81/share (30.0x terminal FCF) while exit multiple gives $40.92/share (17.4x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 69.09% indicates efficient cash generation. FCF reaches $2.0B by Year 10 (20.93% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.49

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)11.20%

Cost of Debt

Pre-tax Cost of Debt0.62%

Tax Rate30.00%

After-tax Cost of Debt0.44%

Equity Weight (E/V)50.89%

Debt Weight (D/V)49.11%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (50.89% × 11.20%) + (49.11% × 0.44%)

= 5.91%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$7.0B	$7.8B	$8.5B	$8.9B	$9.6B
EBIT	$1.3B	$1.4B	$1.7B	$2.1B	$2.4B
Tax	$383M	$429M	$516M	$616M	$733M
NOPAT	$894M	$1.0B	$1.2B	$1.4B	$1.7B
+ Depreciation	$337M	$377M	$410M	$431M	$464M
- Capex	$103M	$116M	$126M	$132M	$142M
- Δ NWC	-$180M	$41M	$21M	$22M	$23M
Free Cash Flow	$1.3B	$1.2B	$1.5B	$1.7B	$2.0B
Discount Factor	0.944	0.842	0.750	0.669	0.563
Present Value	$1.2B	$1.0B	$1.1B	$1.1B	$1.1B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.0B

Terminal Growth Rate2.50%

WACC5.91%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$60.4B

PV of Terminal Value$34.0B

Exit Multiple Method

Year 10 EBITDA$2.9B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$34.9B

PV of Terminal Value$19.7B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$11.1B

PV of Terminal Value$34.0B

Enterprise Value$45.1B

(-) Net Debt$9.7B

Equity Value$35.4B

Shares Outstanding515M

Price per Share$68.81

Exit Multiple Method

PV of Projected FCFs$11.1B

PV of Terminal Value$19.7B

Enterprise Value$30.8B

(-) Net Debt$9.7B

Equity Value$21.1B

Shares Outstanding515M

Price per Share$40.92

Pure Model Fair Value

$54.86

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
3.91%	$84.29	$95.26	$90.70	$86.36	$82.22
4.91%	$60.87	$67.26	$76.30	$86.36	$82.22
5.91%	$47.12	$50.50	$54.86	$60.73	$69.02
6.91%	$37.80	$39.81	$42.28	$45.38	$49.39
7.91%	$30.90	$32.20	$33.74	$35.59	$37.86

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$40.92

52.8% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.86

Base Case

$54.86

104.8% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.49

Bull Case

$70.35

162.7% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 1.26

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-20.55%

Year 3 Revenue Growth5.58%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin18.33%

Terminal EBIT Margin28.00%

Tax Rate30.00%

Historical Capex / Rev1.48%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 12x EV/EBITDA (Financial Services sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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