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Strong Equity Markets to Drive Franklin's (BEN) Q3 Earnings

Zacks Equity Research

Franklin Resources, Inc. BEN is scheduled to report third-quarter fiscal 2019 results, before the opening bell on Jul 30. The company’s results are projected to reflect year-over-year fall in earnings and revenues.

In the last reported quarter, Franklin’s results surpassed the Zacks Consensus Estimate. Controlled expenses were reflected in the quarter. However, lower revenues and reduced assets under management (AUM) were recorded. Net outflows were also an undermining factor.

Further, Franklin recorded positive earnings surprise in two out of the trailing four quarters, the average beat being 0.91%.

Franklin Resources, Inc. Price, Consensus and EPS Surprise

Franklin Resources, Inc. Price, Consensus and EPS Surprise

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

Nevertheless, activities of the company in the fiscal third quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of 63 cents remained unchanged over the last seven days. Also, the figure reflects year-over-year fall of 16%.

Earnings Whispers

Franklin does have the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

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

Earnings ESP: The company has an Earnings ESP of +0.13%.

Zacks Rank: Franklin’s Zacks Rank of 1 (Strong Buy) increases the predictive power of ESP.

Factors to Influence Q3 Results

Strong Markets: Performance of equity markets remained impressive during the April-June quarter. The S&P 500 Index increased nearly 8.2% year over year and 3.8% sequentially in the quarter. Moreover, the index measuring international equity performance — the MSCI EAFE — inched up 0.8% year over year but was up 1.6% sequentially. This is anticipated to likely drive the California-based asset manager’s results to a large extent.

Higher AUM: Given Franklin’s AUM disclosure for June 2019 and favorable foreign-currency fluctuations, its results are predicted to display higher AUM, on a sequential basis. Yet, the company is expected to record outflows mainly tied with U.S. and non-U.S. mutual funds. Nevertheless, strong equity markets performance is likely to be a tailwind.

Per the Zacks Consensus Estimate, total AUM for the to-be-reported quarter will be up marginally to $713 million sequentially.

Revenues Might Upsurge: Investment management fees, which mark a significant portion of the company’s revenues, might reflect a rise in the fiscal third quarter. The consensus estimate for investment management fees of $1.03 billion indicates nearly 3.6% sequential increase. Furthermore, sales and distribution fees are projected to be up 4.7% sequentially to $376 million in the quarter to be reported. However, shareholder servicing fees are estimated to be down 5.3% sequentially.

Overall, the Zacks Consensus Estimate for revenues of $1.48 billion indicates a year-over-year fall of 4.8%.

Controlled Expenses: Management remains focused on effective cost control. In the fiscal third quarter, the impact of management expectations is will likely be reflected. Notably, management anticipates 2-3% decline in expenses in fiscal 2019.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Moody's Corporation MCO is slated to release results on Jul 31. The company has an Earnings ESP of +0.65% and carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Artisan Partners Asset Management Inc. APAM has an Earnings ESP of +0.25% and holds a Zacks Rank of 2. It is scheduled to report June quarter-end figures on Jul 30.

UMB Financial Corporation UMBF has an Earnings ESP of +0.06% and carries a Zacks Rank #3. It is set to release quarterly numbers on Jul 30.

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