On Tuesday, TD Cowen made a notable adjustment to its outlook on Franklin Resources (NYSE:BEN), a global investment management organization. The firm's analyst has reduced the price target from the previous $20.00 to $18.50, while maintaining a Hold rating on the company's shares.
The decision to revise the price target downward comes amid concerns about the company's Western Asset Management Company (WAMCO) division. The analyst pointed out that while the broader plan and the non-WAMCO narrative seem positive, the situation for WAMCO is quite challenging. There is an ongoing regulatory investigation that appears to be expanding, which is causing unease.
The analyst expects that Franklin Resources will face significant Fixed Income (FI) attrition, which is the loss of clients or assets from the fixed income segment of their business. This anticipated attrition is part of the reason for the lowered expectations.
Furthermore, the analyst expressed skepticism regarding Franklin Resources' ability to achieve operating leverage in the current environment. Operating leverage is a measure of how revenue growth translates into growth in operating income, and achieving it can be difficult when facing regulatory scrutiny and client attrition.
In light of these challenges, TD Cowen has also adjusted its fiscal year 2024 earnings estimate for Franklin Resources downward by nearly 10%. Additionally, the analyst has introduced a fiscal year 2026 projection, which also factors into the revised price target. Despite these adjustments, the firm has chosen to retain its Hold rating on the stock, suggesting that it does not see enough negative evidence to recommend selling the shares at this time, nor enough positive evidence to recommend buying.
In other recent news, Franklin Resources, a global investment management organization, reported mixed results during its recent earnings call. The company disclosed a 22% increase in assets under management (AUM) to $1.68 trillion and an 8% rise in adjusted operating revenues to $6.6 billion for the fiscal year. However, challenges arose with net outflows totaling $32.6 billion and a decrease in performance fees from $383 million to $293 million.
Franklin Resources also revealed its strategic shift, aiming to raise $100 billion in private markets over the next five years and significantly expand its ETF and Canvas AUM. The firm is investing in technology, including AI and blockchain, to improve client services and operational efficiency.
Despite these developments, the company experienced a rise in adjusted operating expenses by 13% to $4.9 billion and a decline in both adjusted operating income and adjusted net income. Franklin Resources' CEO, Jenny Johnson, emphasized the company's strategic diversification and evolution over the past five years, with a notable increase in ETF AUM by 89%, reaching $31 billion.
InvestingPro Insights
In light of TD Cowen's revised outlook on Franklin Resources (NYSE:BEN), additional data from InvestingPro provides further context to the company's financial position. Despite the challenges highlighted by the analyst, Franklin Resources maintains a significant dividend yield of 6.15%, reflecting its commitment to shareholder returns. This aligns with an InvestingPro Tip noting that the company "pays a significant dividend to shareholders" and has impressively "maintained dividend payments for 44 consecutive years."
However, the company's financial metrics reveal some mixed signals. While Franklin Resources boasts a revenue of $8.48 billion over the last twelve months, its EBITDA growth has seen a significant decline of 35.68% during the same period. This decline in EBITDA growth could be related to the challenges in the WAMCO division and the anticipated Fixed Income attrition mentioned in the analyst's report.
The P/E ratio (adjusted) of 15.4 suggests that the stock might be reasonably valued compared to its earnings, but another InvestingPro Tip cautions that the company is "trading at a high P/E ratio relative to near-term earnings growth." This tip seems particularly relevant given the analyst's downward revision of earnings estimates.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide valuable insights into Franklin Resources' financial health and future prospects.
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