We have reiterated our Neutral recommendation on
Franklin Resources Inc.
) based on its impressive earnings performance and prudent expense
management. The results outpaced the Zacks Consensus Estimate.
FRANKLIN RESOUR (BEN): Free Stock Analysis
INVESCO LTD (IVZ): Free Stock Analysis Report
To read this article on Zacks.com click here.
In July, Franklin reported fiscal third-quarter 2012 earnings of
$2.12 per share, surpassing the Zacks Consensus Estimate of $2.04
per share. However, results lagged earnings of $2.32 in the prior
quarter and $2.26 in the prior-year quarter. Better-than-expected
results were due to lower operating expenses, reflecting prudent
expense management by Franklin. Yet, reduced level of AUM was a
headwind in the quarter. Moreover, lower revenues were a dampener.
Earlier in September, Franklin reported preliminary assets under
management (AUM) of $731.0 billion by its subsidiaries for the
month of August 2012. The company's results witnessed a rise of
1.7% from $718.7 billion as of July 31, 2012. Moreover, it
increased 2.0% from $716.4 billion as of August 31, 2011.
Among Franklin's peers -
) also announced a 1.5% rise in its preliminary month-end AUM for
the month of August 2012. The company's AUM for the reported month
was $669.7 billion compared with $659.5 billion at the end of July.
The increase in Invesco's AUM was a result of encouraging market
returns and total net inflows.
Franklin is strategically augmenting and expanding its foothold.
Recently, Franklin announced the acquisition of the controlling
stake in K2 Advisors Holdings LLC (K2), an independent fund of
hedge funds solutions provider. The purchase of K2 will assist
Franklin in improving and expanding its alternative investments and
multi-asset solutions platforms. Such strategic initiatives would
help Franklin in providing world-class investment solutions to its
clients and auger well for worldwide expansion.
Though prior to the third fiscal quarter ended June 30, 2012,
financial markets provided overall positive returns and volatility
decreased along with subdued negative sentiments experienced during
the fourth quarter of fiscal 2011, yet the recovery stalled and
volatility increased during the third fiscal quarter amid continued
investor concerns related to the European sovereign debt crisis and
the global economy. The ongoing market concerns are likely to
result in continued volatility. Moreover, uncertainties regarding
economic stabilization and improvement remain in the foreseeable
A strong balance sheet and recently completed acquisitions are
expected to boost the upcoming financial results of the company,
though the regulatory restrictions and turbulence in global
markets, along with the sluggish economic recovery, could mar the
AUM growth while increasing its costs.
We believe that the risk-reward profile of Franklin is currently
balanced and hence, we have reiterated our Neutral recommendation
on its shares. Franklin currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating.