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Why Franklin Covey Stock Plunged 21% This Week

Motley Fool - Fri Mar 31, 2023

What happened

Franklin Covey (NYSE: FC) saw its share price tumble this week, as it was down 21% as of today at noon ET, according to S&P Global Market Intelligence. The stock was trading at about $37 per share on Friday at noon ET, down roughly 21.7% year to date.

The markets were up slightly this week, as the S&P 500 gained 2.8%, the Dow Jones Industrial Average rose 2.6%, and the Nasdaq Composite climbed 2.6% this week, as of Friday at noon ET.

So what

Franklin Covey, the organizational consulting and training firm, dropped this week following the release of its fiscal second-quarter earnings on Wednesday, March 29. For the quarter ended Feb. 28, it was a mixed bag, as net sales increased 9% year over year to $61.8 million, while gross profit was up 7% year over year to top $47 million.

However, net income was down about 7% to $1.74 million, or $0.12 per share, on higher expenses. Selling, general, and administrative expenses climbed $3.8 million in the quarter to $42.3 million on higher costs associated with salaries, new staff, travel, and commissions.

The firm missed both earnings and revenue projections, as analysts predicted $0.13 EPS and $62.4 million in revenue.

Three Wall Street analysts lowered their price targets for Franklin Covey, including Roth MKM, Northland, and Barrington. Barrington analyst Alexander Paris dropped the target from $60 to $55 per share but maintained his outperform rating. The other two also maintained their outperform ratings. Paris said economic headwinds could impact revenue projections.

Now what

Overall, analysts are bullish on Franklin Covey, as even a price target drop to $55 would be about 48% over its current share price. The consensus price target among analysts is $65 per share.

In its outlook for its second half of the fiscal year, the company affirmed its guidance that adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will increase between $47 million and $49 million, up from a $42 million increase in fiscal 2022 -- even with plans for increased investment in personnel. The firm also announced that it will buy back $50 million worth of stock this year.

Also, the company improved its liquidity with $55 million in cash and $15 million in a new line of revolving credit via an agreement with Key Bank. The stock is trading at about 36 times earnings, down from about 41 at the end of 2022. It remains a little overpriced, given the uncertain near-term macro environment.

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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Franklin Covey. The Motley Fool has a disclosure policy.