Franklin Resources (BEN) Down 17% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Franklin Resources (BEN). Shares have lost about 17% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Franklin Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Franklin's Q1 Earnings Beat Estimates on Higher AUM

Franklin reported first-quarter fiscal 2020 (ended Dec 31) earnings of 70 cents per share, beating the Zacks Consensus Estimate of 67 cents. Results also compare favorably with the earnings of 54 cents per share recorded in the prior-year quarter.

The company’s results display higher revenues and AUM. Also, a strong capital position was a positive. However, net outflows and escalating expenses were undermining factors.

Operating income was $392.7 million in the reported quarter compared with the prior-year quarter’s $411.5 million.

Net income was $350.5 million compared with the $275.9 million recorded in the prior-year quarter.

Revenues Climb, Costs Up

Total operating revenues increased slightly year over year to $1.41 billion in the fiscal first quarter, mainly owing to higher investment management and other fees, partly offset by lower sales and distribution fees, along with shareholder-servicing fees. The figure lagged the Zacks Consensus Estimate of $1.43 billion.

Investment management fees inched up 1% year over year to $979.7 million, while other net revenues climbed 6% to $31.5 million. However, sales and distribution fees were down 1% year over year to $351.5 million. Additionally, shareholder-servicing fees dipped 9% on a year-over-year basis to $50 million.

Total operating expenses flared up 2% year over year to $1.02 billion. This upside resulted from higher compensation and benefits, occupancy as well as technology expenses, partly mitigated by lower sales, distribution and marketing, along with general, administrative and other expenses.

As of Dec 31, 2019, total AUM came in at $698.3 billion, up 7% from $649.9 billion as of Dec 31, 2018. Notably, the company recorded net new outflows of $12.3 billion in the quarter. Simple monthly average AUM of $693.8 billion increased 2% year on year.

Stable Capital Position

As of Dec 31, 2019, cash and cash equivalents, along with investments, were $8.6 billion compared with $8.5 billion as of Sep 30, 2019. Furthermore, total stockholders' equity was $10.8 billion compared with $10.6 billion as of Sep 30, 2019.

During the December-end quarter, the company repurchased 4.6 million shares of its common stock at a total cost of $123.6 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Franklin Resources has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Franklin Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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