Will Franklin (BEN) Q1 Earnings Disappoint Expectations? - Analyst Blog
Franklin Resources, Inc. (BEN) is scheduled to report fiscal first-quarter 2015 results before the opening bell on Friday, Jan 30.
In the last quarter, this asset manager delivered a 10.87% positive earnings surprise, driven by strong top-line performance. Improved assets under management (AUM) and a strong capital position were the other positives. However, elevated operating expenses were a concern.
Will Franklin be able to beat earnings after combating the challenges that the industry witnessed during the quarter? Let's see what factors might have influenced the earnings report this time around.
Factors to Impact Fiscal First-Quarter Results
Though the overall market remained volatile during the quarter, major U.S. equity indexes witnessed an uptick that favorably impacted the investment management industry. The quarter witnessed superior performance by the asset management business and a still high investment banking transaction backlog. Thus, we believe Franklin has benefited from this favorable trend.
Franklin’s efforts to improve operating efficiency resulted in year-over-year growth in the top line in the prior quarter. We expect the upcoming results to show a similar trend, given the company’s strength in investment management, sales and distribution. Further, expected improvement in AUM should significantly support its results.
On the other hand, the company’s inability to reduce expenses is a major concern. The past few years witnessed rising expenses. Moreover, as a result of potential changes in strategic marketing campaigns, the level of advertising and promotion expenditures might increase more rapidly than revenue, thereby affecting bottom-line growth. We do not expect this trend to reverse this time as well.
Moreover, Franklin is subject to numerous regulations by U.S. and non-U.S. regulators that add further complexity to ongoing global compliance operations and can thereby hurt profitability.
Further, activities of Franklin during the fiscal first quarter 2015 were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 93 cents per share over the last 7 days.
Earnings Whispers
Our proven model shows that Franklin is likely to miss the Zacks Consensus Estimate in the fiscal first quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3(Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The earnings ESP for Franklin is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 93 cents per share.
Zacks Rank: Franklin’s Zacks Rank #4 (Sell) further lowers the predictive power of ESP.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Lazard Ltd. (LAZ) has an Earnings ESP of +1.91% and carries a Zacks Rank #3. It is scheduled to report results on Feb 5.
WisdomTree Investments, Inc. (WETF) has an Earnings ESP of +20.00% and carries a Zacks Rank #2. It is expected to report results on Feb 6.
JMP Group LLC (JMP) has an Earnings ESP of +7.14% and carries a Zacks Rank #1. It is expected to report results on Feb 13.
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