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Will Decline in AUM Hurt Franklin's (BEN) Earnings in Q1?

Franklin Resources BEN is scheduled to report first-quarter fiscal 2021 results on Feb 1. BEN’s results are anticipated to indicate increases in both earnings and revenues from the last fiscal year’s comparable quarterly reports.

In the last reported quarter, Franklin’s earnings lagged the Zacks Consensus Estimate. BEN’s results reflected revenue growth, with support from a substantial rise in assets under management (AUM). However, higher expenses and net outflows were the offsetting factors.

Franklin’s earnings beat estimates in all the trailing four quarters, the average surprise being 20.3%.

Franklin Resources, Inc. Price and EPS Surprise

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

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

BEN’s activities in the to-be-reported quarter were adequate to win analysts’ confidence. The Zacks Consensus Estimate for earnings of 86 cents per share for the fiscal first quarter has moved up 2.4% in the past 30 days. Also, the figure indicates an 8.9% rise from the year-ago fiscal’s corresponding quarterly reported figure. The consensus estimate for revenues is pegged at $2.15 billion, suggesting growth of 3.5% from the last fiscal year’s comparable quarterly reported number. For the first quarter of fiscal 2022, management expects revenues to be approximately flat.

Key Development During the Quarter

Earlier this month, Franklin completed its previously announced acquisition of O’Shaughnessy Asset Management, LLC (OSAM), a preeminent quantitative asset management firm, thus reinforcing its position in the separately managed account space. Through this acquisition, BEN will leverage OSAM’s factor-based investment management and custom indexing solution capabilities via the latter’s popular flagship Canvas platform. The buyout is expected to have driven BEN’s AUM balance in the fiscal first quarter.

Factors to Note

Normalized Markets: Unlike 2020 and the first few months of 2021, the fiscal first quarter did not record a significant rise in market volatility. The performance of equity markets was decent in the December quarter. The S&P increased 14.4% in the to-be reported quarter. Moreover, during the quarter, MSCI EAFE — the index measuring international equity performance — appreciated 2.69%. Relatively lower volatility and market normalization are expected to have affected this California-based asset manager’s performance.

AUM: Franklin reported preliminary month-end assets under management of $1.57 billion as of Dec 31, 2021. BEN is likely to have witnessed net outflows on a combined basis, having recorded modest inflows in fixed income products, partly offset by outflows in equities during the to-be-reported quarter. Due to relatively low volatility and market normalization, BEN’s results are likely to reflect a decrease in AUM on overall outflows and modest client activities. Also, foreign exchange is likely to have been a headwind as dollar strengthened against other notable currencies during the quarter.

Nonetheless, the Zacks Consensus Estimate for Franklin’s AUM for the fiscal first quarter is pegged at $1.56 billion, indicating a rise of 4% from the prior-year quarter’s reported figure.

Expenses: Franklin remains on track to realize $300 million of gross synergies in relation to the Legg Mason deal with 85% of run rate savings realized and 100% to be achieved by the end of fiscal 2022. However, expenses are likely to have increased due to higher inflationary pressure and a probable internal investment expenditure. For the first quarter of fiscal 2022, management expects expenses to be down in the low-single digits from the prior fiscal year’s comparable quarterly reading (excluding performance fees).

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 a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat this time around.

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

Earnings ESP: Franklin has an Earnings ESP of +0.11%.

Zacks Rank: Franklin currently carries a Zacks Rank of 3.

Other Stocks That Warrant a Look

Some other finance stocks worth considering with the right combination of elements to beat on earnings in their upcoming releases per our model, are Carlyle Group CG, Ares Capital Corporation ARCC and American Campus Communities ACC.

The for Carlyle has an Earnings ESP of +1.49% and a Zacks Rank of 3 at present. CG is scheduled to report quarterly numbers on Feb 3.

Ares Capital is slated to report quarterly results on Feb 9. ARCC currently has an Earnings ESP of +11.11% and a Zacks Rank #2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Campus has an Earnings ESP of +1.86% and a Zacks Rank of 3 at present. ACC is scheduled to report quarterly numbers on Feb 22.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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

Ares Capital Corporation (ARCC) : Free Stock Analysis Report

American Campus Communities Inc (ACC) : Free Stock Analysis Report

Carlyle Group Inc. (CG) : Free Stock Analysis Report

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