We have reiterated our Neutral recommendation on
Franklin Resources Inc.
) based on its impressive earnings performance and improved
assets under management levels. The results outpaced the Zacks
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In October, Franklin reported fiscal fourth-quarter 2012 earnings
of $2.31 per share, marginally beating the Zacks Consensus
Estimate by a penny. Moreover, results outpaced earnings of $2.12
in the prior quarter. Better-than-expected results came on the
back of higher revenues. Moreover, increased level of AUM was a
tailwind for the quarter. Yet, higher operating expenses were a
Earlier in December, Franklin reported preliminary AUM of $768.8
billion by its subsidiaries for the month of November 2012. The
company's results witnessed a rise of 2.0% from $753.9 billion as
of October 31, 2012. Moreover, it increased 13.8% from $675.8
billion as of November 30, 2011.
Among Franklin's peers -
) also announced a 1.0% rise in its preliminary month-end AUM for
the month of November 2012. The company's AUM for the reported
month was $683.8 billion compared with $677.0 billion at the end
of October. Favorable market returns and total net inflows were
the primary reasons for the rise in AUM.
Franklin is strategically augmenting and expanding its foothold.
Recently, the company completed 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.
During fiscal 2012, though global financial markets produced
strong positive returns and the markets recovered from the
significant volatility and negative sentiment experienced during
the fourth quarter of fiscal year 2011, yet it remained volatile
throughout the year amid continued investor concerns related to
the European sovereign debt crisis and the global economy.
Moreover, uncertainties regarding economic stabilization and
improvement remain in the foreseeable future.
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 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. However, Franklin currently retains a Zacks #2
Rank, which translates into a short-term Buy rating.