Franklin Resources Inc.(BEN) declared preliminary assets under management (AUM) of $734.2 billion by its subsidiaries for the end of June. Results were down 0.2% from $735.8 billion as of May 31, 2011 but up 28.7% from $570.5 billion as of June 30, 2010.
Month-end total equity assets came in at $309.8 billion, down 2.1% sequentially, but up 31.2% year over year. Of the total equity assets, roughly 73% were from international sources while the remaining 27% were from the U.S.
Total fixed income assets were $303.1 billion, up 2.3% from $296.4 billion as of May 31, 2011 and 33.8% from $226.5 billion as of June 30, 2010. Of the total, tax-free assets accounted for only 23%, while the remaining 77% were taxable.
Franklin recorded $115.1 billion in hybrid assets, slightly down from $116.4 billion as of May 31, 2011 and up 13.3% from $101.6 billion as of June 30, 2010. Cash management funds as reported were $6.2 billion, down from $6.6 billion recorded in May 2011 and $6.3 billion as of June 2010.
On a quarterly basis, AUM increased from $586.8 billion as of March 31, 2010, resulting from higher inflows and market appreciation. Simple monthly average AUM during the quarter inched up 5.0% sequentially and 22.0% year over year to $687.2 billion. At the end of the quarter, net new flows were $8.4 billion versus $3.2 billion in the prior quarter and $17.4 billion in the prior-year quarter.
Estimate Revision Trends
Franklinis expected to release its third-quarter 2011 earnings on August 2, 2011. Over the last 30 days, 3 out of the 14 analysts covering Franklin have lowered their estimates for the third quarter, while two moved in the opposite direction. Furthermore, for fiscal 2011, 4 out of the 16 analysts have lowered their estimates, while one upward revision was witnessed over the last 30 days.
Currently, the Zacks Consensus Estimate for the third quarter is operating earnings of $2.16 per share, a surge of 36.44% from the year-ago quarter. Furthermore, over the last 30 days, operating earnings estimate for the third quarter and fiscal 2011 have surged by 1 cent per share.
Our Take
Franklin's global footprint is an exceptionally favorable strategic point, since its AUM is well diversified. Moreover, a strong balance sheet coupled with the recently completed acquisitions is expected to strengthen the financials of the company going forward. However, the regulatory restrictions are anticipated to mar the AUM growth and increase its costs.
Currently, Franklin retains a Zacks #3 Rank, which translates to a short-term ‘Hold’ rating. Besides, considering the fundamentals, we are maintaining a long-term ‘Neutral’ recommendation on the stock. Franklin’s peer – Invesco Ltd. (IVZ) also retains a Zacks #3 Rank.
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