Will High Equity Markets Drive Franklin (BEN) Q3 Earnings?

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Franklin Resources, Inc. BEN is scheduled to report third-quarter fiscal 2018 results, before the opening bell on Jul 27. The company's results are projected to reflect a year-over-year rise in earnings and decline in revenues.

In the last reported quarter, Franklin outpaced the Zacks Consensus Estimate, driven by rise in revenues. Nevertheless, elevated operating expenses remained a headwind. Also, net outflows and lower assets under management (AUM) were the undermining factors.

Further, Franklin recorded positive earnings surprise in three out of the trailing four quarters, with an average beat of 6.72%.

Franklin Resources, Inc. Price and EPS Surprise

Franklin Resources, Inc. Price and EPS Surprise | Franklin Resources, Inc. Quote

Nevertheless, activities of the company in the fiscal third quarter were inadequate to win analysts' confidence. As a result, the Zacks Consensus Estimate for earnings of 75 remained unchanged over the last seven days. However, the figure reflects year-over-year rise of 2.74%.

Earnings Whispers

According to our proven model, we cannot conclusively predict if Franklin will likely beat the Zacks Consensus Estimate this time. That's because it doesn't have the right combination of the two key ingredients - positive Earnings ESP and a Zacks Rank #3 (Hold) or better - to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Earnings ESP: The company has an Earnings ESP of 0.00%.

Zacks Rank: Franklin carries a Zacks Rank of 3, which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

Factors to Influence Q3 Results

Strong Market Performance: Performance of equity markets remained decent during the April-June quarter. The S&P 500 Index gained nearly 12.2% year over year and 2.9% sequentially in the quarter. Moreover, the index measuring international equity performance - the MSCI EAFE - climbed around 3.3% year over and 2.5% sequentially. This is anticipated to likely benefit this California-based asset manager to a large extent.

Lower AUM: Given Franklin's AUM disclosure for June 2018 and unfavorable foreign currency fluctuations, its results are predicted to display lower AUM, on a sequential basis. In addition, the company is expected to record outflows mainly tied with U.S. and non-U.S. mutual funds. Nevertheless, decent equity markets performance can be a tailwind.

Per the Zacks Consensus Estimate, total AUM for the to-be-reported quarter is expected to edge down slightly to $736 million sequentially.

Decrease in Revenues: Investment management fees, which mark a significant portion of the company's revenues, might escalate on the back of quarterly market performance. The consensus estimate for investment management fees of $1.1 billion indicates nearly marginal year-over-year growth. However, sales and distribution fees are projected to be down 6.2% year over year to $406 million in the quarter to be reported.

Overall, the Zacks Consensus Estimate for revenues of $2.1 billion indicates a year-over-year fall of 2.1%.

Controlled Expenses: Management remains focused on effective cost control. While potential investments in the technology front might escalate expenses in fiscal 2018 (6.5-7.5%), previous cost-cutting initiatives are likely to infuse optimism.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

The Earnings ESP for Ares Management L.P. ARES is +0.36% and the stock carries a Zacks Rank of 3. The company is scheduled to release second-quarter results on Aug 2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Hamilton Lane Inc. HLNE has an Earnings ESP of +6.96% and carries a Zacks Rank of 3. It is slated to report results on Aug 7.

Encore Capital Group Inc ECPG has an Earnings ESP of +5.86% and a Zacks Rank #3. It is set to report results on Aug 8.

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Hamilton Lane Inc. (HLNE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: BEN , ARES , ECPG , HLNE

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