Franklin Reaffirmed at Neutral
On Sep 24, 2013, we maintained our long-term recommendation on Franklin Resources Inc. (BEN) at Neutral based on its well-managed global franchise, strong capital base and recent acquisitions. However, regulatory restrictions and sluggish economic recovery could mar assets under management (:AUM) growth and increase costs. Additionally, higher expenses remain a matter of concern.
Why Neutral?
Franklin is growing strategically and expanding its foothold. Recently, the company announced the completion of the purchase of the remaining 80% stake in Pelagos Capital Management, LLC, an independent investment advisor. Such acquisitions will assist Franklin in improving and expanding its alternative investments and multi-asset solutions platforms, thereby helping provide world-class investment solutions to its clients.
We view Franklin as a sound asset for yield-seeking investors. The company has hiked its dividend every year since its inception in 1981. Notably, in Sep 2013, Franklin enhanced its quarterly common stock dividend by 3% over the prior quarter to 10 cents per share. The dividend will be paid on Oct 11 to shareholders of record as of Sep 30, 2013.
Moreover, Franklin’s fiscal third-quarter 2013 earnings reached 86 cents per share, beating the Zacks Consensus Estimate by a penny. Moreover, results outpaced earnings of 71 cents in the prior-year quarter. Notably, during the quarter, Franklin announced a 3-for-1 stock split, which was paid as stock dividend on Jul 25, 2013 to common stockholders of record as of Jul 12, 2013.
However, at the current level, the asset management business is under cyclical and secular pressures along with ongoing margin pressures, many of which have been aggravated by the financial crisis. These pressures include volatile markets and new regulatory compliances. Though Franklin remains well positioned over the long term, given short-term performance hindrances and macro headwinds, a limited upside is expected in the near term.
For Franklin, the Zacks Consensus Estimate for fiscal 2013 remained stable at $3.42 per share, over the last 60 days. For 2014, the Zacks Consensus Estimate declined 1.1% to $3.67, over the same time frame. Hence, Franklin carries a Zacks Rank #3 (Hold).
Investment Managers to be Consider
Some investment managers that are worth considering include GAMCO Investors, Inc. (GBL) with a Zacks Rank #1 (Strong Buy), while Affiliated Managers Group Inc. (AMG) and Noah Holdings Limited (NOAH) carry a Zacks Rank #2 (Buy).
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