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Franklin Resources (BEN) Q4 Earnings: A Beat in the Cards?

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We expect Franklin Resources, Inc. (BEN - Free Report) to beat earnings expectations when it report its fourth quarter and fiscal 2016 results before the opening bell on Oct 26.

Why a Likely Positive Surprise?

Our proven model shows that Franklin Resources has the right combination of two key ingredients to beat earnings.

Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.45%. This is a major indicator of a likely positive earnings surprise for the company.

Zacks Rank #3 (Hold): Franklin Resources carries a Zacks Rank #3. Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings.

The combination of Franklin Resources’ Zacks Rank #3 and ESP of +1.45% makes us confident of an earnings beat on Oct 26.  The company, however , does not boast of a decent earnings surprise history. 

FRANKLIN RESOUR Price and EPS Surprise

Factors to Influence Q4 Results

The Jul-Sep quarter in 2016 recorded a strong performance of equity markets. S&P 500 Index gained 3.3% in the quarter. Also, the index measuring international equity performance – the MSCI EAFE Index – rose 5.8% during the quarter.

Given Franklin’s AUM disclosure for Sep 2016, the upcoming release will exhibit higher assets under management.  However, on the down side, the company is likely to record continued outflows mainly tied with Global Fixed Income asset class.

Franklin expects general, administrative and other expense to exhibit seasonal uptick in the fourth quarter. However, the company’s cost-control efforts should support bottom-line growth to some extent.  Notably, management expects a 3% decline in costs in 2016 excluding sales expenses.

The fiscal 2016 operating margin is expected to be in the range of 31.5–32.5%.

The activities of Franklin during the quarter have been able to win analysts’ confidence as reflected by four upward revisions in earnings estimates (versus one downward revision) over the last 30 days. The Zacks Consensus Estimate has been revised 1.5% upward over the last one month to 69 cents.

Stocks That Warrant a Look

Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.

KKR & Co. L.P. (KKR - Free Report) is slated to release results on Oct 25. The company has an Earnings ESP of +1.67 % and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Raymond James Financial, Inc. (RJF - Free Report) has an Earnings ESP of +2.04% and it carries a Zacks Rank #2. The company is slated to release results on Oct 26.

Lazard Ltd. (LAZ - Free Report) , another Zacks Rank #2 stock, has an Earnings ESP of +3.90%. It is scheduled to report results on Oct 27.

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