This Stock Had an Obvious Earnings Setback. Now It's a Bargain

Following stocks over long periods provides a true comfort level of what they are truly worth. That information can serve you well when large percentage moves, up or down, occur on stocks you're familiar with. Asset management company Janus Henderson Group PLC took a header on Wednesday, after issuing slightly below forecast first-quarter earnings per share of 75 cents vs. an 87-cent consensus estimate. That really shouldn't have surprised people, as money managers are paid a percentage of assets under management (AUM). The putrid start to 2022 depressed share prices, which in turn lowered fees collected. The good news was that JHG's funds have performed well compared with competitors over most long term periods and that many stocks now appear remarkably undervalued. Whenever stocks turn around fees generated will automatically ratchet higher. Management continues to buy back shares so the now lower stock price will make that process more cost effective. The Board of Directors showed confidence in the future by boosting the quarterly dividend rate by 3-cents a share, to an annual rate of $1.56. The company is net debt-free (corporate cash far exceeds trivial total debt). At its May 4, 2022 quote of $27.15, a newly established 2021 - 2022 low point, JHG shares yielded 5.75%. That's way better than any decently rated bond, money market or bank CD is now paying. What is JHG really worth? From 2012 through 2021 a typical price-to-earnings ran about 15.9-times with a wide degree of variation depending on the market's mood. A normalized yield ran about 3.82%. Right now those figures are much more favorable. JHG's forward multiple is now just 8.4x even after trimming this year's estimate from $3.70 to $3.25. The shares have rarely paid a higher yield. Assume a conservative 13.5-times forward earnings and JHG could rebound to $40 - $44 by the end of 2022. Reverse engineer the current dividend to normal and you come up with a $41.62 present day fair value for JHG. Anywhere close to that price range offers significant total return potential from under $28 per share. My target prices are far from crazy. Janus Henderson first broke through $40 back in 2015 on final EPS of $1.70. It topped out at $41.60 in early 2018 ahead of EPS of $2.61. JHS carved out an all-time high of $48.55 last November. It changed hands above $44 in 2022 year to date. Research house FastGraphs is of a similar mind regarding JHG. It offers a Dec. 31, 2022 projected price range running from $36.14 at a 10.2-times price-to-earnings to $53.32 if JHG reverts back to a more typical 15-times. Morningstar research assigned JHG a 4-star, out of 5, buy rating ahead of Wednesday's news announcement while calling JHG's present day fair value as $39. Additionally, Morningstar calls the firm's capital allocation exemplary. Owning shares outright offers a very attractive yield along with substantial upside potential. Option-minded traders could benefit from short sales of JHG's Dec. 16, 2022 expiration date puts at $30 and/or $35 strike prices. Actual pricing on those, with JHG at $27.15, are shown below. Worst-case, forced purchase prices dropped to either $24.70 or $25.50 depending on the strike prices employed. JHG hasn't traded as low as even the more aggressive of those break-even prices since November of 2020, more than 18-months ago. Owning Janus Henderson at those if put prices would tweak the stock's current yield to between 6.23% and 6.43% as well. Reward to risk on these naked put sales are extremely skewed towards positive outcomes. My own view is that equities are long overdue for a huge recovery. If so, JHG's assets under management and earnings should surge in tandem. Buy some JHG shares, sell some puts as described, or consider doing both.

This Stock Had an Obvious Earnings Setback. Now It's a Bargain

I see another great chance to own this asset management company.

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