Financial institutions play a critical role, offering everything from consumer banking to wealth management and specialized financial solutions. Market leaders have certainly capitalized on a favorable backdrop to boost profitability, helping fuel a 20% gain for the industry over the past six months - 4 percentage points higher than the S&P 500.
Nevertheless, investors should tread carefully as many firms are cyclical due to their leverage and exposure to regulatory changes. Taking that into account, here is one financials stock boasting a durable advantage and two best left ignored.
Two Financials Stocks to Sell:
Franklin Resources (BEN)
Market Cap: $12.75 billion
Operating under the widely recognized Franklin Templeton brand since 1947, Franklin Resources (NYSE: BEN) is a global investment management organization that offers financial services and solutions to individuals, institutions, and wealth advisors worldwide.
Why Should You Dump BEN?
- 2.3% annual revenue growth over the last two years was slower than its financials peers
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 4.3% annually while its revenue grew
- ROE of 8.5% reflects management’s challenges in identifying attractive investment opportunities
At $24.56 per share, Franklin Resources trades at 10.5x forward P/E. If you’re considering BEN for your portfolio, see our FREE research report to learn more.
PROG (PRG)
Market Cap: $1.38 billion
Evolving from its origins as Aaron's, Inc. before rebranding in 2020, PROG Holdings (NYSE: PRG) provides alternative payment solutions including lease-to-own options and second-look credit products for consumers who may not qualify for traditional financing.
Why Do We Avoid PRG?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Earnings per share fell by 2.2% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 13.2% annually over the last five years
PROG is trading at $34.99 per share, or 10.7x forward P/E. Check out our free in-depth research report to learn more about why PRG doesn’t pass our bar.
One Financials Stock to Buy:
Evercore (EVR)
Market Cap: $12.56 billion
Founded in 1995 as a boutique advisory firm focused on independence and client trust, Evercore (NYSE: EVR) is an independent investment banking firm that provides strategic advisory, capital markets, and wealth management services to corporations, financial sponsors, and high-net-worth individuals.
Why Will EVR Outperform?
- Annual revenue growth of 14.1% over the last two years beat the sector average and underscores the unique value of its offerings
- Annual tangible book value per share growth of 15.7% over the past five years was outstanding, reflecting strong capital accumulation this cycle
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
Evercore’s stock price of $325.30 implies a valuation ratio of 23.5x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
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