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Franklin (BEN) Reflects Cost-Control Benefits: Time to Hold?

Priti Dhanuka

Franklin Resources BEN has been benefiting from expense management and strong diversification strategies. Moreover, the company’s steady capital-deployment activities are commendable. Nonetheless, declining investment management fees and strict regulatory environment are near-term concerns for the company.

In third-quarter fiscal 2019 (ended Jun 30), Franklin reported positive earnings surprise of 3.17%, outpacing the Zacks Consensus Estimate. However, the figure declined on a year-over-year basis. The results reflected strong capital position, lower revenues and reduced assets under management (AUM).

The company’s earnings estimates for fiscal 2019 have remained unchanged in the last 30 days. As a result, the stock currently carries a Zacks Rank #3 (Hold).

Franklin’s shares have lost around 20.4%, over the past three months, compared with the industry’s decline of 1.1%.

Franklin exhibits impressive cost-control measures. Though the company recorded 2% rise in fiscal 2018 operating expenses as well as in the first nine months of fiscal 2019 on potential investments in the technology, it had recorded 7%, 14% and 3% decline in operating expenses in fiscals 2015, 2016 and 2017, respectively.

Also, Franklin remains well poised to undertake inorganic growth strategies. In the last couple of years, the company has completed acquisitions that helped it improve and expand alternative investments and multi-asset solutions platforms. This, in turn, is likely to aid the company in providing world-class investment solutions to clients.

Franklin remains committed toward enhancing shareholders’ value. Notably, in April 2018, the company announced an additional repurchase authorization of up to 80 million shares. Moreover, driven by a healthy liquidity position, the company has hiked its dividend every year since its inception in 1981, the latest being the 13% increase last December. The company also paid a special cash dividend of $3 per share last April.

However, the company’s AUM is exposed to market fluctuations and foreign-exchange translations, regulatory changes or a sudden slowdown in overall business activities. Therefore, investment management fees, the company’s biggest source of revenues, might be adversely impacted.

Other Stocks to Consider

T. Rowe Price Group, Inc. TROW has been witnessing upward estimate revisions, for the past 60 days. Moreover, this Zacks #1 (Strong Buy) Ranked stock has rallied more than 19%, year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.

Artisan Partners Asset Management Inc. APAM has been witnessing upward estimate revisions, for the past 60 days. Also, the company’s shares have gained nearly 20.5% year to date. At present, it carries a Zacks Rank of 2.

AllianceBernstein Holding L.P. AB has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 3.5% in the year-to-date period. It currently carries a Zacks Rank #2.

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