Investment Thesis
Franklin Electric faces significant operational challenges despite 5.4% revenue growth, with negative operating cash flow of -$40.9M indicating working capital deterioration that contradicts positive accounting profits. The company's extremely poor returns on equity (2.6%) and assets (1.7%) combined with 16.6% EPS decline signal fundamental capital inefficiency and shareholder value destruction.
Strengths
- Conservative capital structure with 0.10x debt/equity ratio and minimal financial risk
- Excellent short-term liquidity with 2.67x current ratio provides operational flexibility
- Strong interest coverage of 20.8x ensures no debt service concerns with $134.4M long-term debt
Risks
- Negative operating cash flow of -$40.9M with matching -$50.4M free cash flow indicates unsustainable working capital deterioration despite positive net income
- Catastrophically low returns: 2.6% ROE and 1.7% ROA demonstrate severe capital inefficiency and inability to generate returns for shareholders
- Profitability deterioration with 16.6% EPS decline while net income grew only 0.4% YoY indicates margin compression and shareholder dilution despite revenue growth
Key Metrics to Watch
- Operating cash flow reversal and detailed working capital analysis (receivables aging, inventory turnover)
- Free cash flow sustainability and cash burn rate stabilization
- Return on equity and asset improvement trajectory
Financial Metrics
Revenue
500.4M
Net Income
34.3M
EPS (Diluted)
$0.77
Free Cash Flow
-50.4M
Total Assets
2.0B
Cash
80.4M
Profitability Ratios
Gross Margin
35.0%
Operating Margin
9.6%
Net Margin
6.9%
ROE
2.6%
ROA
1.7%
FCF Margin
-10.1%
Balance Sheet & Liquidity
Current Ratio
2.67x
Quick Ratio
1.14x
Debt/Equity
0.10x
Debt/Assets
0.0%
Interest Coverage
20.81x
Long-term Debt
134.4M
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T13:04:45.236747 |
Data as of: 2026-03-31 |
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