On Jun 25, 2013, we reiterated our long-term recommendation on Franklin Resources Inc. (BEN) at Neutral based on its well-managed global franchise, strong capital base and recent acquisitions. However, regulatory restrictions and sluggish economic recovery could mar assets under management (AUM) growth and increase costs. Additionally, higher expenses remain a matter of concern.
Why Neutral?
Franklin is growing strategically and expanding its foothold. Recently, the company announced the completion of the purchase of the remaining 80% stake in Pelagos Capital Management, LLC, an independent investment advisor. Such acquisitions will assist Franklin in improving and expanding its alternative investments and multi-asset solutions platforms, thereby helping provide world-class investment solutions to its clients.
We view Franklin as a sound asset for yield-seeking investors. The company exhibits a healthy positioning from a balance sheet perspective. It has been able to generate positive cash flow even in an increasingly difficult operating environment. Franklin remains in compliance with the requirements for regulatory ratios. Moreover, the company has hiked its dividend every year since its inception in 1981.
Moreover, Franklin’s fiscal second-quarter 2013 earnings reached $2.69 per share, significantly beating the Zacks Consensus Estimate by 21 cents. Additionally, results outpaced earnings of $2.42 in the prior quarter. Better-than-expected results came on the back of higher revenues. Moreover, increased level of AUM and a strong capital position were the tailwinds.
However, at the current level, the asset management business is under cyclical and secular pressures along with ongoing margin pressures, many of which have been aggravated by the financial crisis. These pressures include volatile markets and new regulatory compliances. Though Franklin remains well positioned over the long term, given short-term performance hindrances and macro headwinds, a limited upside is expected in the near term.
For Franklin, the Zacks Consensus Estimate for fiscal 2013 jumped 2.1% to $10.36 per share, over the last 60 days. For 2014, the Zacks Consensus Estimate advanced 1.7% to $11.60, over the same time frame. Currently, Franklin carries a Zacks Rank #3 (Hold).
Investment Managers to be Consider
Some investment managers that are worth considering include GAMCO Investors, Inc. (GBL), Virtus Investment Partners, Inc. (VRTS) and Noah Holdings Limited (NOAH). All 3 companies carry a Zacks Rank #1 (Strong Buy).
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