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Analyst Blog

On March 14, 2014, we issued an updated research report on California based global investment management firm Franklin Resources Inc. (BEN - Analyst Report). The company started fiscal 2014 with a positive note as it recently reported impressive first-quarter 2014 results. Results were aided by top-line growth and improved assets under management (AUM), partially offset by higher operating expenses.

On Jan 30, Franklin came out with fiscal first-quarter (ended Dec 2013) 2014 earnings of 96 cents per share, outpacing the Zacks Consensus Estimate by 3.2%. Total operating revenue increased 11% year over year to $2.11 billion due to growth in most revenue avenues.

Franklin has consistently exhibited efforts in enhancing its organic growth strategy driven by its portfolio of diverse and innovative investment products along with a relatively strong distribution platform. Further, driven by market appreciation and net new inflows, Franklin’s AUM has been consistently growing and recorded a 5-year CAGR of 10.05% in fiscal 2013.

Franklin’s efforts in enhancing shareholder value through its efficient capital deployment activities are commendable. Notably, during fiscal first-quarter 2014 the company enhanced shareholder value by returning over $201.2 million to the shareholders through dividends and share repurchases.

Though the company exhibits strong fundamentals, we remain cautious due to the current economic uncertainty across the industry. These include mounting expenses, concentration risk stemming from investment management fees that constitutes a major source of revenue and the prevailing stringent regulatory landscape.

Further, the Zacks Consensus Estimate over the past 60 days declined more than 1% to $3.79 per share for fiscal 2014. Also, for fiscal 2015, it declined nearly 1% to $4.19 per share.

Franklin currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look in the Sector

Fortress Investment Group LLC (FIG - Snapshot Report), Lazard Ltd. (LAZ - Analyst Report) and Och-Ziff Capital Management Group LLC (OZM - Snapshot Report) are better-ranked stocks in this space. All these hold a Zacks Rank #1 (Strong Buy).

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