Why Is Franklin Resources (BEN) Up 3.4% Since Last Earnings Report?

It has been about a month since the last earnings report for Franklin Resources (BEN). Shares have added about 3.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Franklin Resources due for a pullback? 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 drivers.

Franklin's Q1 Earnings Top Estimates, AUM Increases

Franklin reported first-quarter fiscal 2021 (ended Dec 31) adjusted earnings of 73 cents per share, inching past the Zacks Consensus Estimate of 72 cents. Results also compare favorably with the earnings of 67 cents per share recorded in the prior-year quarter.

The company’s results display top-line strength during the quarter. Also, a solid capital position and higher AUM were positives. However, higher expenses were a major drag. Additionally, net outflows were an undermining factor.

Adjusted operating income came in at $549.9 million in the reported quarter compared with the prior-year quarter’s $405.5 million.

Including certain notable items, net income was $345.3 million or 67 cents per share compared with the $350.5 million or 70 cents per share recorded in the prior-year quarter.

Revenues Climb, Partly Offset by High Costs

Total operating revenues jumped 44% year over year to $2 billion in the fiscal first quarter on higher investment management, sales and distribution and other fees, partly negated by lower shareholder-servicing fees.

Investment management fees surged 57% year over year to $1.54 billion, while other net revenues increased 5% to $8.4 million. Moreover, sales and distribution fees were up 13% year over year to $396.9 million. Yet, shareholder-servicing fees dipped 1% to $49.4 million.

Total operating expenses flared up 56% year over year to $1.59 billion. This upsurge resulted from rise in all components of expenses, including compensation and benefits, information systems and technology, general, administrative and other along with sales, distribution and marketing expenses.

As of Dec 31, 2020, total AUM came in at $1.5 trillion, up 6% from $1.4 trillion as of Sep 30, 2020 and up 115% from $698.3 billion as of Dec 31, 2019. Notably, the company recorded net new outflows of $4.5 billion during the October-December period. Simple monthly average AUM of $1.4 trillion increased 18% sequentially and more than doubled on a year-over-year basis.

Stable Capital Position

As of Dec 31, 2020, cash and cash equivalents, along with investments, were $5.3 billion compared with $4.3 billion as of Sep 30, 2020. Furthermore, total stockholders' equity was $11.4 billion compared with $11 billion as of Sep 30, 2020.

During the reported quarter, the company repurchased 2.1 million shares for a total cost of $45.6 million.

Outlook

Post addition of two months of Legg Mason, the company remains on track to realize $300 million of gross synergies with 85% of run rate savings expected to be realized by the end of fiscal year 2021.

The cost to achieve these savings is expected to be approximately $200 million, which is a $150 million less than originally anticipated. Also, around $600 million of cash tax benefit related to the various tax attributes and deductions is expected, which carried forward in the transaction a 20% increase from initial estimate.

In second-quarter of fiscal 2021, the company expects compensation expenses to increase 2-3%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Franklin Resources has an average Growth Score of C, however its Momentum Score is doing a bit 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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