The Case of a Deeply-Rooted Pennsylvania Money Tree
If you're looking for a safe place to earn a solid dividend at a bargain price, Franklin Financial Services might just be your money tree.
You can buy this undervalued bank's stock today at $13.60, earn a 5% dividend for the foreseeable future, and obtain a reasonable chance of doubling your money.
Disclosure: As of this posting, I own shares of FRAF and may subsequently either dispose of them or purchase more.
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F.N.B. Corp, Hermitage, PA (FNB)
M&T Bank Corp, Buffalo, NY (MTB)
PNC Financial Services, Pittsburgh, PA (PNC)
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Financial Snapshot
(as of 3/31/2012)
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Trailing 12-month return on assets:
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Trailing 12-month return on equity:
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G Warren Elliott, Chairman
William Snell Jr, President and CEO
Mark Hollar, Senior VP, Treasurer, and CFO
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How undervalued is FRAF's stock price?
- Over the past 12 months, the KBW Bank Index climbed 12.2%, while FRAF stock fell 17%
- The average bank in the KBW Index trades at 124% of book value, while investors can now buy FRAF at 61% of book value
- The average bank in the KBW Index trades at 15x earnings, while FRAF is trading at 8x earnings
- Therefore, Franklin Financial Services is effectively trading at a 50% discount
Why is FRAF so cheap?
- Most investors have never heard of it
- FRAF recently cut its dividend so many people who did own it appear to be selling
- Current EPS of $1.60 is well below historical level of $2.50
- NPAs were still rising in Q1 and may not have peaked
- Brokerage firms do not appear to be following FRAF
What would make the stock price double?
- When NPAs start to decline…
- Then earnings and book value will grow…
- And people will start to trust that the dividend will not be cut again…
- Then FRAF could trade at book value
What makes this stock relatively safe?
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The bank has been around for over 100 years and is very conservative
- Its managers don’t pay themselves exorbitant salaries or take big risks
- It has maintained profitability through the Great Recession
- It never took TARP
- Regional unemployment is significantly below the national average
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