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Will Franklin Resources (BEN) Surprise on Earnings?

Zacks Equity Research

Franklin Resources Inc. (BEN) is scheduled to report its fiscal second-quarter 2014 results on Monday, Apr 28, before the opening bell.

Franklin started fiscal 2014 on a positive note as it delivered a positive earnings surprise of 3.2% in the opening quarter. Results were aided by higher revenues and improved assets under management (AUM.TO), partially offset by elevated operating expenses.

Will Franklin succeed to surprise in the upcoming release as well? Let’s see how things have shaped up for this announcement.   

Factors to Influence

Though overall market remained volatile during the quarter, major U.S. equity indexes witnessed an uptick that favorably impacted the investment management industry. Thus, we believe Franklin has benefit from this favorable trend.

Franklin’s efforts to improve operating efficiency has resulted sequential and year-over-year growth in top-line in the prior quarter. We expect the upcoming results to show similar trend given the company’s strength in investment management, and sales and distribution.

Further, the growth in AUM witnessed by the company during the quarter should significantly support its results. Though AUM fell in January, the company reported growth in February and March.  

On the other hand, the company’s inability to reduce expenses is a major concern. The past couple of quarters has witnessed rising expenses. We don’t expect this trend to reverse this time as well. Particularly, the company has not indicated anything related to its cost control initiatives during the quarter.   
Activities of Franklin during the quarter were not enough to encourage analysts. As a result, the Zacks Consensus Estimate for the quarter remained stable at 90 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Franklin is likely to beat the Zacks Consensus Estimate in fiscal second-quarter 2014. That 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 96 cents.

Zacks Rank: Though Franklin’s Zacks Rank #3 (Hold) increases the predictive power of ESP, we also need to have a positive ESP to be confident about an earnings beat.
Other Stocks to Consider

Here are a few stocks that you may want to consider at this point, as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:

Lazard Ltd. (LAZ) has an earnings ESP of +1.82% and carries a Zacks Rank #1 (Strong Buy). It is expected to report its first-quarter results on May 1.

The earnings ESP for Legg Mason Inc. (LM) is +1.12% and it carries a Zacks Rank #3 (Hold). The company is scheduled to release its first-quarter results on May 1.

AllianceBernstein Holding L.P. (AB) has an earnings ESP of +2.44% and carries a Zacks Rank #3 (Hold). It is expected to report its first-quarter results on Apr 30.

Read the Full Research Report on BEN
Read the Full Research Report on LM
Read the Full Research Report on LAZ
Read the Full Research Report on AB

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