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Franklin Resources' Cost Control Efforts On Track, AUM Falls

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On Aug 24, we issued an updated research report on Franklin Resources BEN. The company has been benefiting from expense management and strong diversification strategies. However, declining investment management fees and strict regulatory environment remain the near-term concerns for the company.

In third-quarter fiscal 2018 (ended Jun 30), Franklin reported earnings in line with the Zacks Consensus Estimate. However, the figure improved on a year-over-year basis. The results were affected by declining assets under management (AUM) and net outflows witnessed during the quarter.

The company’s earnings estimates for fiscal 2018 have remained stable in the last seven days. As a result, the stock currently carries a Zacks Rank #3 (Hold).

Franklin’s shares have lost 4% over the past three months compared with the industry’s decline of 5.8%.

Franklin exhibits impressive cost control measures. It recorded 7%, 14% and 3% decline in operating expenses in fiscal 2015, fiscal 2016 and fiscal 2017, respectively. Though management expects costs to remain elevated in 2018 due to certain non-recurring items, previous cost-cutting initiatives are expected to support the top line.

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

However, the company’s AUM is exposed to market fluctuations and foreign exchange translations, regulatory changes or a sudden slowdown in overall business activities. Notably, during fiscal 2016 and fiscal 2017, investment management fees — a major source of revenues for Franklin — declined due to reduced average AUM and lower effective fee rate.   

Further, the business and regulatory environment in which Franklin operates continues to be complex and uncertain. Additionally, it remains subjected to numerous regulations by U.S. and non-U.S. regulators that further increases complexity of ongoing global compliance operations and thereby hurt profitability.

Stocks to Consider

Some better-ranked stocks in the same space are Ameriprise Financial AMP, Lazard Ltd LAZ and SEI Investments Company SEIC.  All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ameriprise has witnessed upward earnings estimate revision of 1.7% for the current year, in the last 60 days. Also, its shares have gained 2.6% over the past year.

Lazard’s Zacks Consensus Estimate for current-year earnings has been revised upward by 2.5%, in the last 60 days. Also, on a yearly basis, its shares have rallied 13.8%.

SEI Investments has witnessed slight upward earnings estimate revision for the current year, in the last 60 days. The company’s shares have gained 8.8% in a year’s time.

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Lazard Ltd (LAZ) : Free Stock Analysis Report
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