Franklin (BEN) Q1 Earnings: Disappointment in the Cards?

Franklin Resources, Inc.BEN is scheduled to report first-quarter fiscal 2017 (ended Dec 31) results before the opening bell on Jan 27.

In the last quarter, earnings of this asset manager had outpaced the Zacks Consensus Estimate and also came above the prior-year quarter figure. Results displayed decline in expenses, partially offset by reduced revenues. Notably, the quarter recorded decline in assets under management (AUM) and recorded net outflows.

Franklin recorded positive earnings surprise in two of the trailing four quarters, with an average positive surprise of 8.14% as depicted in the chart below:

Franklin Resources, Inc. Price and EPS Surprise

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

Regarding the stock's performance, Franklin gained around 23.3% over the past one year, significantly outpacing the Zacks categorized Investment Management industry's 19.2% growth.

Will the upcoming earnings release push the stock higher?

However, our proven model does not conclusively show that Franklin is likely to beat the Zacks Consensus Estimate in the first quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen.

Unfortunately, this is not the case here as elaborated below. We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Zacks ESP: The Earnings ESP for Franklin is 0.00%. This is because both the Most Accurate estimateand the Zacks Consensus Estimate are pegged at 68 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Franklin's Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.

Factors to Influence Q1 Results

The Oct-Dec quarter in 2016 recorded a strong performance of equity markets. The S&P 500 Index gained 3.8% in the quarter. However, the index measuring international equity performance - the MSCI EAFE Index - edged down around 0.68% during the quarter.

Given Franklin's AUM disclosure for Dec 2016, the upcoming release will exhibit higher assets under management. However, on the down side, the company is likely to record continued outflows mainly tied with Global Fixed Income asset class. Notably, management anticipates near-term flows to face headwinds from variable annuity-related net redemptions of $2.6 billion in the fiscal first quarter.

Franklin's cost-control efforts should support bottom-line growth to some extent. Notably, management anticipates expenses in fiscal 2017 to remain flat or decline slightly, considering the impact of previous cost-cutting initiatives.

Nevertheless, we believe that the company's top line should get support from its diversified portfolio offerings as well as its global presence.

The activities of Franklin during the quarter were unableto win analysts' confidence. As a result, the Zacks Consensus Estimate remained unchanged at 68 cents over the last seven days.

Stocks That Warrant a Look

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

Heartland Financial USA, Inc. HTLF is scheduled to report fourth-quarter results on Jan 30. It has an Earnings ESP of +1.33% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here.

The Earnings ESP for Waddell & Reed Financial, Inc. WDR is +14.63% and it carries a Zacks Rank #3. The company is scheduled to release fourth-quarter results on Jan 31.

Banc of California, Inc. BANC has an Earnings ESP of +12.50% and a Zacks Rank #3. It is slated to report fourth-quarter results on Jan 26.

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Heartland Financial USA, Inc. (HTLF): Free Stock Analysis Report

Waddell & Reed Financial, Inc. (WDR): Free Stock Analysis Report

Franklin Resources, Inc. (BEN): Free Stock Analysis Report

Banc of California, Inc. (BANC): 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.

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

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