Franklin's December AUM Improves - Analyst Blog

Franklin Resources Inc. (BEN) reported preliminary assets under management (AUM) of $670.7 billion by its subsidiaries for the end of December. Results were up 4.4% from $642.3 billion as of November 30, 2010 and 21.2% from $553.5 billion as of December 31, 2009.

At the end of the month, total equity assets were $296.1 billion, up 7.3% sequentially and 15.8% year over year. Of the total equity assets, roughly 74% were from international sources while the rest 26% from the U.S.

Total fixed income assets were $262.0 billion, up 1.7% from $258.7 billion as of November 30, 2010, and 40.0% from $187.6 billion as of December 31, 2009. Of the total, tax-free assets accounted for only 27%, while the rest 73% were taxable.

Franklinrecorded $106.1 billion in hybrid assets compared with $100.8 billion as of November 30, 2010 and $104.0 billion as of December 31, 2009. Cash management funds as reported were $6.5 billion, down from $6.8 billion in November 2010, but up from $6.1 billion in December 2009.

Franklinis a global investment management company, deriving the majority of its revenue and net income from investment advisory and related services to retail mutual funds, institutional and private accounts and other investment products.

As of September 30, 2010, Franklin reported AUM of $644.9 billion, up from $523.4 billion at the end of a year-ago period and $570.5 billion as of June 30, 2010. Net new flows for the quarter ended on September 30, 2010 were $19.4 billion, up from $12.2 billion in the year-ago quarter and $18.8 billion in the previous quarter.

For the quarter ended September 2010, Franklin's closest competitor BlackRock Inc. (BLK) reported AUM of $3.45 trillion, which more than doubled from $1.43 trillion in the prior-year quarter, substantially surpassing Franklin's AUM.

Estimate Revision Trends

Franklinis expected to release its first quarter 2011 earnings on January 24, 2011. Over the last 7 days, 3 of the 16 analysts covering Franklin have lowered their estimate for the first quarter of 2011, while only one upward revision was witnessed. Currently, the Zacks Consensus Estimate for operating earnings in the first quarter is $1.88 per share, an increase of 21.9% from the year-ago quarter.

For the full year 2011, 3 of the 19 analysts covering the stock have reduced their estimates, while there were no upward revisions. The Zacks Consensus Estimate for operating earnings is $7.80 for the full year, up 23.2% from 2010.

We believe Franklin's global footprint is favorable from a strategic perspective, since its AUM is well diversified. This coupled with a strong balance sheet is expected to cushion the company.

Franklin is not immune to the volatile economic environment, which has been made worse by the costly regulatory environment following the Reform Act; its revenues and AUM bear witness to its vulnerability. With the market reviving gradually, the company is expected to post better results in the quarters ahead, though regulations could negatively impact by AUM and increase its costs.

Franklin shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold recommendation. Considering the company's business model and fundamentals, we have a long-term Neutral recommendation on the stock as well.

 
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