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Franklin (BEN) Down 6.3% Since Earnings Report: Can It Rebound?

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About a month has gone by since the last earnings report for Franklin Resources, Inc. (BEN - Free Report) . Shares have lost about 6.3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 Q4 Earnings Beat Estimates, Costs Flare Up

Franklin recorded a positive earnings surprise of 5.6% in fourth-quarter fiscal 2017. Earnings of 76 cents per share beat the Zacks Consensus Estimate of 72 cents. However, results compared unfavorably with the prior-year quarter earnings of 82 cents per share.

Top-line strength and growth in AUM were recorded. Nevertheless, elevated operating expenses were a headwind. Net outflows were also an undermining factor.

For fiscal 2017, earnings per share were $3.01 versus $2.94 recorded in the prior year. Moreover, earnings outpaced the Zacks Consensus Estimate of $2.97 by 4 cents per share.
Net income was $425.2 million in the quarter compared with $472.1 million witnessed in the prior-year quarter. For fiscal 2017, net income was $1.7 billion compared with $1.73 billion in the prior year.

Higher Revenues Recorded, Costs Escalate

For fiscal 2017, total operating revenues dropped 3% year over year to $6.39 billion. Further, revenues lagged the Zacks Consensus Estimate of $6.41 billion.

Total operating revenues increased slightly year over year, to $1.62 billion in the quarter, mainly due to higher investment management and other fees, mostly offset by lower sales and distribution fees and shareholder servicing fees. Yet, revenues lagged the Zacks Consensus Estimate of $1.64 billion.

Investment management fees inched up 1% year over year to $1.11 billion, while sales and distribution fees were down 4% year over year to $421.8 million. In addition, shareholder servicing fees descended 4%, on a year-over-year basis, to $56 million, while other net revenues escalated 80% year over year to $29.3 million.

Total operating expenses flared up 3% year over year to $1.06 billion. The rise resulted mainly from elevated compensation and benefits, general, administrative, and information systems and technology expenses. These increases were partially offset by lower sales, distribution and marketing, along with occupancy expenses.

As of Sep 30, 2017, total AUM came in at $753.2 billion, up 3% from $733.3 billion as of Sep 30, 2016. Notably, the quarter recorded net new outflows of $5.9 billion. Simple monthly average AUM of $749 billion climbed 2% on a year-over-year basis.

Stable Capital Position

As of Sep 30, 2017, cash and cash equivalents, along with investments were $9.9 billion, compared with $10.7 billion as of Sep 30, 2016. Furthermore, total stockholders' equity was $12.9 billion compared with $12.5 billion as of Sep 30, 2016.

During fiscal 2017, Franklin repurchased 19.1 million shares of its common stock at a total cost of $771.5 million. Notably, during the reported quarter, the company repurchased 3.9 million shares of its common stock at a total cost of $168.4 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.

VGM Scores

At this time, Franklin's stock has a poor Growth Score of F, though it is doing a bit better on the momentum front with D. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

While estimates have been trending upward for the stock, the magnitude of this revision has been net zero. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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