FC - Franklin Covey: Patience Should Pay Off

2024-04-12 03:45:16 ET

Summary

• Franklin Covey's current low valuation does not reflect its potential for high-single-digit sales growth and strong operating leverage.
• The Enterprise segment, which consists of soft-skill behavioral content sold to various organizations, has a sustainable pathway to adding more sales reps over time to further penetrate their market.
• Concurrently, Franklin Covey should capture material operating leverage as they grow, leading to outsized growth. This is likely to be enhanced, as well, by continued share repurchases.

Introduction

Despite continually posting strong numbers, Franklin Covey ( FC ) doesn’t ever seem to get the love it deserves. Per my anecdotal conversations, most of the reasons stem from a mental model tied more to their legacy business model (what’s happened historically) rather than their current business model (what should happen going forward). Until investors come around, this reality will continue to be the case.

Said differently, Franklin Covey trades at ~8.8x EBITDA despite a clear pathway to high-single-digit sales growth over time plus material operating leverage which should push underlying earnings growth into the double-digit territory (plus or minus investment timing). With this growth profile, they should more reasonably trade at something north of 10x EBITDA on a fundamental basis....

For further details see: