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Will Decline in AUM Dampen Franklin's (BEN) Q4 Earnings?
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Franklin Resources (BEN - Free Report) is scheduled to report fiscal fourth-quarter and 2021 results, before the opening bell, on Nov 1. The company’s results are anticipated to reflect year-over-year increases in earnings and revenues.
In the last reported quarter, Franklin’s earnings surpassed the Zacks Consensus Estimate. The company’s results displayed revenue growth, with support from a solid rise in assets under management (AUM). However, a rise in expenses and net outflows were the offsetting factors.
Franklin beat estimates in three of the trailing four quarters and missed in the other, the average surprise being 3.91%.
Prior to the fiscal fourth-quarter earnings release, the company is witnessing downward estimate revision, reflecting analysts’ bearish sentiments. The Zacks Consensus Estimate for the fiscal fourth-quarter earnings has been revised 1.2% downward to 86 cents over the past month. Nonetheless, the figure suggests year-over-year growth of 53.6%.
The Zacks Consensus Estimate for revenues of $2.1 billion indicates a year-over-year jump of 24.4%.
In late September, Franklin announced the acquisition of O’Shaughnessy Asset Management, LLC (OSAM), a preeminent quantitative asset management firm, thereby, bulking up its offerings in the separately-managed account space. The transaction, subject to customary closing norms, is anticipated to close in fourth-quarter calendar-year 2021.
Through the acquisition, the company will leverage OSAM’s factor-based investment management and custom indexing solution capabilities via the latter’s popular flagship Canvas platform.
Factors to Note
Normalized Markets: The performance of equity markets was mixed in the September-end quarter. The S&P rallied 0.6%, with positive returns in July (+2.4%) and August (+3.0%), followed by a major drawdown in September (-4.7%). Moreover, during the quarter MSCI EAFE — the index measuring international equity performance — depreciated 0.45% sequentially. This is expected to have impacted the California-based asset manager’s quarterly performance to a large extent.
Lower AUM: Franklin reported preliminary month-end assets under management of $1.5 trillion as of Sep 30, 2021. It is likely to have witnessed net outflows on a combined basis, having recorded modest inflows in fixed income products, partly offset by outflows in equities during the to-be-reported quarter. Due to relatively low volatility and market normalization, the company’s results will likely reflect a decrease in AUM on overall outflows and modest client activities. Also, foreign exchange is likely to have been a headwind as dollar strengthened against other notable currencies.
Controlled Expenses: Following the addition of Legg Mason, Franklin has been on track to realize the gross synergies. The company anticipates to realize $150 million each in expense reductions related to the merger in fiscal 2021. However, expenses are likely to have flared up on higher AUM-driven costs and non-recurring costs from fund launches.
Let’s have a look at what our quantitative model predicts:
Franklin does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Franklin is 0.00%.
Zacks Rank: Franklin currently carries a Zacks Rank of 4 (Sell).
Here are some finance stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.
Hamilton Lane Inc. (HLNE - Free Report) is slated to release results on Nov 2. It has an Earnings ESP of +11.34% and carries a Zacks Rank #3, at present.
KKR & Co. Inc. (KKR - Free Report) currently has an Earnings ESP of +1.34% and holds a Zacks Rank #2 (Buy). It is scheduled to report results on Nov 2.
Affiliated Managers Group, Inc. (AMG - Free Report) presently has an Earnings ESP of +0.34% and carries a Zacks Rank of 3. It is scheduled to report results on Nov 1.
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Will Decline in AUM Dampen Franklin's (BEN) Q4 Earnings?
Franklin Resources (BEN - Free Report) is scheduled to report fiscal fourth-quarter and 2021 results, before the opening bell, on Nov 1. The company’s results are anticipated to reflect year-over-year increases in earnings and revenues.
In the last reported quarter, Franklin’s earnings surpassed the Zacks Consensus Estimate. The company’s results displayed revenue growth, with support from a solid rise in assets under management (AUM). However, a rise in expenses and net outflows were the offsetting factors.
Franklin beat estimates in three of the trailing four quarters and missed in the other, the average surprise being 3.91%.
Franklin Resources, Inc. Price and EPS Surprise
Franklin Resources, Inc. price-eps-surprise | Franklin Resources, Inc. Quote
Prior to the fiscal fourth-quarter earnings release, the company is witnessing downward estimate revision, reflecting analysts’ bearish sentiments. The Zacks Consensus Estimate for the fiscal fourth-quarter earnings has been revised 1.2% downward to 86 cents over the past month. Nonetheless, the figure suggests year-over-year growth of 53.6%.
The Zacks Consensus Estimate for revenues of $2.1 billion indicates a year-over-year jump of 24.4%.
In late September, Franklin announced the acquisition of O’Shaughnessy Asset Management, LLC (OSAM), a preeminent quantitative asset management firm, thereby, bulking up its offerings in the separately-managed account space. The transaction, subject to customary closing norms, is anticipated to close in fourth-quarter calendar-year 2021.
Through the acquisition, the company will leverage OSAM’s factor-based investment management and custom indexing solution capabilities via the latter’s popular flagship Canvas platform.
Factors to Note
Normalized Markets: The performance of equity markets was mixed in the September-end quarter. The S&P rallied 0.6%, with positive returns in July (+2.4%) and August (+3.0%), followed by a major drawdown in September (-4.7%). Moreover, during the quarter MSCI EAFE — the index measuring international equity performance — depreciated 0.45% sequentially. This is expected to have impacted the California-based asset manager’s quarterly performance to a large extent.
Lower AUM: Franklin reported preliminary month-end assets under management of $1.5 trillion as of Sep 30, 2021. It is likely to have witnessed net outflows on a combined basis, having recorded modest inflows in fixed income products, partly offset by outflows in equities during the to-be-reported quarter. Due to relatively low volatility and market normalization, the company’s results will likely reflect a decrease in AUM on overall outflows and modest client activities. Also, foreign exchange is likely to have been a headwind as dollar strengthened against other notable currencies.
Controlled Expenses: Following the addition of Legg Mason, Franklin has been on track to realize the gross synergies. The company anticipates to realize $150 million each in expense reductions related to the merger in fiscal 2021. However, expenses are likely to have flared up on higher AUM-driven costs and non-recurring costs from fund launches.
Let’s have a look at what our quantitative model predicts:
Franklin does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Franklin is 0.00%.
Zacks Rank: Franklin currently carries a Zacks Rank of 4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks Worth a Look
Here are some finance stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.
Hamilton Lane Inc. (HLNE - Free Report) is slated to release results on Nov 2. It has an Earnings ESP of +11.34% and carries a Zacks Rank #3, at present.
KKR & Co. Inc. (KKR - Free Report) currently has an Earnings ESP of +1.34% and holds a Zacks Rank #2 (Buy). It is scheduled to report results on Nov 2.
Affiliated Managers Group, Inc. (AMG - Free Report) presently has an Earnings ESP of +0.34% and carries a Zacks Rank of 3. It is scheduled to report results on Nov 1.