Franklin Resources: Earnings Preview

| About: Franklin Resources (BEN)

Franklin Resources Inc. (NYSE:BEN) is scheduled to report its fiscal third-quarter 2011 results before the opening bell on Tuesday, August 2. The Zacks Consensus Estimate for the third quarter is $2.16 per share, representing an increase of about 37% from the year-ago quarter.

Franklin's global footprint is an exceptionally favorable strategic point, since its AUM is well diversified. Moreover, a strong balance sheet and recently completed acquisitions are expected to strengthen the financials of the company. However, the regulatory restrictions could mar the AUM growth and increase its costs.

Previous Quarter Performance

Franklin’s second-quarter 2011 earnings of $2.25 per share outpaced the Zacks Consensus Estimate of $2.00. Results reflected strong growth in revenue and higher AUM, partially offset by increased operating expenses. Moreover, the results surpassed the earnings of $1.55 per share in the prior-year quarter and $2.23 per share in the prior quarter.

Earnings Estimate Revisions – Overview

Prior to the results release, earnings estimate remained stable at $2.16 over the last 7 days. The steadiness in estimate indicates stability in the stock.

We will now look into the details of earnings estimate revisions to substantiate why investors should hold this stock.

Agreement of Analysts

Looking at the estimate revision trends, it is quite clear that analysts are in agreement with the stable fiscal third-quarter earnings outlook for Franklin. No upward or downward estimate revision for the third quarter was witnessed over the last 7 days.

Moreover, for FY11 and FY12, none of the analysts has increased or decreased the estimate over the last 7 days. This indicates no clear directional pressure on the performance of the stock in the near term.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the fiscal third quarter remained unchanged at operating earnings of $2.16 per share over the last 7 days. Moreover, estimates for FY11 and FY12 also remained stable at $8.82 and $9.72, respectively.

Earnings Surprise

Franklin’s performance has been volatile over the trailing four quarters with respect to earnings surprises. The average earnings surprise was a positive 7.7%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.

By and Large

Franklinis growing strategically and expanding its foothold. During the first half of fiscal 2011, the company entered into a new strategic relationship with (Telegis) Capital Management, acquiring a 20% equity stake. The company’s experience in commodities, managed futures, and hedge fund replication ideally balances the existing alternative offerings of Franklin.

Furthermore, Franklin completed the acquisition of Rensburg Fund Management, a UK equity specialist with about $1.5 billion in AUM in January 2011. The Rensburg acquisition aid the company to diversify its product offerings in key markets. Moreover, Franklin’s planned acquisition of Balanced Equity Management in June 2011 aims to mark its presence in the Australian market by providing best investment options for satisfying local investors' needs. Therefore, we expect Franklin to benefit from the growth potential of these transactions.


The estimate revision trends and magnitude of revision reflect no clear directional pressure on the shares over the near term.

Franklin currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, considering the company’s business model and fundamentals, we have a long-term Neutral recommendation on the stock. Moreover, Franklin’s peer – Invesco Ltd. (NYSE:IVZ) retains a Zacks #3 Rank (short-term Hold rating).