Strong Equity Markets to Aid Franklin's (BEN) Q4 Earnings

Franklin Resources BEN is scheduled to report fourth-quarter fiscal 2020 results, before the opening bell on Oct 27. The company’s results are anticipated to reflect year-over-year rise in earnings, while revenues might display a decline.

In the last reported quarter, Franklin’s results surpassed the Zacks Consensus Estimate. The company’s results displayed prudent expense management during the quarter. Also, a strong capital position was a positive. However, lower revenues and AUM were major drags. Additionally, net outflows were an undermining factor.

Moreover, Franklin beat estimates in three of the trailing four quarters and missed in the other, the average surprise being 20.1%.

Also, the company’s activities in the fiscal fourth quarter were adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of 69 cents was revised upward over the last 30 days. The figure suggests year-over-year growth of 13.1%.

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

Franklin Resources, Inc. price-eps-surprise | Franklin Resources, Inc. Quote

Factors to Note

Strong Markets: Performance of equity markets was decent during the July-September quarter despite coronavirus concerns. The S&P 500 Index increased 8.93% sequentially in the quarter. Moreover, the index measuring international equity performance — the MSCI EAFE — appreciated 9.7% sequentially. This is expected to have driven the California-based asset manager’s performance to a large extent in the quarter to be reported.

Lower AUM: Given Franklin’s AUM disclosure for September2020 and unfavorable foreign-currency fluctuations, its results are anticipated to reflect a lower AUM, on a sequential basis. Also, the company might have recorded outflows though improving fixed income flows.

Per the Zacks Consensus Estimate, total AUM for the to-be-reported quarter is projected to be up 63.9% to $1.02 billion sequentially. Net flows are likely to be positive with $767 million.

Solid Revenues: Investment management fees, which account for a significant portion of the company’s revenues, might have registered a rise in the fiscal fourth quarter. The consensus estimate for investment management fees of $1.04 billion indicates a sequential increase of 28.8%. Furthermore, sales and distribution fees are projected to inch up13.6% sequentially to $343 million in the quarter.

Overall, the Zacks Consensus Estimate for revenues of $1.23 billion indicates a year-over-year decline of 15.3%.

Controlled Expenses: Management remains focused on prudent cost control. It expects expenses to be down 5-7% year over year in 2020, which might get reflected in the fiscal fourth-quarter results.

Let’s have a look at what our quantitative model predicts:

Franklin has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing 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 Earnings ESP for Franklin is +1.33%.

Zacks Rank: Franklin currently carries a Zacks Rank of 2 (Buy), which increases the predictive power of ESP.

Other Stocks Worth a Look

Here are few other bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for CullenFrost Bankers, Inc. CFR is +1.57% and the stock carries a Zacks Rank of 3, at present. The company is slated to report third-quarter numbers on Oct 29. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

T. Rowe Price Group, Inc. TROW is set to release earnings figures on Oct 29. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +1.95%.

BankUnited, Inc. BKU is scheduled to announce quarterly results on Oct 28. The company has an Earnings ESP of +6.1% and a Zacks Rank of 3.

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