Avoid Franklin (BEN), Buy These 4 Investment Managers Instead
Performance of Franklin Resources BEN has not been impressive of late with its shares declining 30.9% over the past year against the industry’s fall of 3.8%. During the same period, the S&P 500 has rallied 10%. So what’s the reason for investors' apathy toward this stock?
One Year Price Performance
Franklin’s declining assets under management (AUM) on account of persistent net outflows remain a key concern. Also, despite overall strong equity markets in the first half of 2020, which resulted in a rise in asset values, the company continued to witness fall in AUM.
Further, steady decrease in investment management fees, which is Franklin’s biggest source of revenues (about 63% of total revenues), for the past few years is a major concern. Though during fiscal 2018, fees remained almost stable, it declined during fiscals 2016, 2017 and 2019 due to reduced average AUM and lower effective fee rate.
Also, Franklin’s balance sheet position doesn’t look impressive. The company held a debt level of $1.38 billion and debt-capital ratio of 0.11 as of Jun 30, 2020, both of which have been increasing over the past few quarters. Further, its time-interest-earned ratio of 50.2, which indicates its ability to meet its debt obligations based on current income, has been declining over the same time period. Thus, we believe Franklin carries a credit risk, and higher likelihood of default of interest and debt repayments if the economic situation worsens.
Moreover, though Franklin’s acquisition of Legg Mason led to the creation of one of the world’s largest independent, specialized global investment managers, no near-term benefits from the deal are expected.
Also, the company’s earnings performance in the past few years has not been impressive. It witnessed historical (three-five years) earnings per share negative growth of 2.98% compared with rise of 8.05% for the industry.
With Franklin currently carrying a Zacks Rank #3 (Hold) and a Growth Score of D, we don’t see it as an attractive investment option. Our research shows that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Picking Favorable Investment Management Stocks
While Franklin doesn’t appear to be an attractive pick right now, there are a few asset managers that are good investment options. Before we check out these stocks, let’s see how the industry is performing.
Despite the prevailing global concerns, the U.S. economy is witnessing steady improvement. This, combined with growing demand for personalized investment products, is anticipated to open up opportunities for the asset management industry.
In addition, the Americans have started saving more as the economy remains uncertain due to the prevailing pandemic-related crisis. Hence, the investment management industry is getting more funds from retail investors. Thus, with overall industry inflows and solid investment performance, growth in AUM balance for majority of the industry players is anticipated.
Further, the Zacks investment management industry currently carries a Zacks Industry Rank #91, placing it at the top 36% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
4 Investment Managers Worth Betting on
With the help of the Zacks Stock Screener, we have zeroed in on four investment management stocks that boast a top Zacks Rank and have performed well against the industry’s decline over the past year. Also, these stocks have expected long-term (three-five years) EPS growth rate of 7% or more.
BlackRock’s BLK broad product diversification, revenue mix and steadily improving AUM are expected to boost revenues. The company’s inorganic growth strategy has also contributed to AUM growth in the past few years.
The stock currently carries a Zacks Rank #2 and has rallied 23.9% in the past year. Also, it has an expected long-term EPS growth rate of 10%.
T. Rowe Price Group TROW currently carries a Zacks Rank of 2. The asset manager’s earnings continue to get support from strong brand, consistent investment track record and strong business volumes. Also, it has been witnessing continuous rise in AUM balance.
The stock has appreciated 8.7% in 12 months’ time. The company has a projected long-term EPS growth rate of 7.8%.
Artisan Partners Asset Management APAM presently carries a Zacks Rank #2 and has gained 30.7% in the past year. The company continues to make steady progress toward improving its top line and has been witnessing AUM growth.
Artisan has an expected long-term EPS growth rate of 11.3%.
Shares of Virtus Investment Partners VRTS have gained 14.6% in the past year. Supported by a solid AUM balance, the company’s revenues have grown consistently in the past few years.
Further, this Zacks #1 Ranked stock’s long-term EPS is projected to grow 8.7%.
One-year Price Performance
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Franklin Resources, Inc. (BEN) : Free Stock Analysis Report
BlackRock, Inc. (BLK) : Free Stock Analysis Report
T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
Virtus Investment Partners, Inc. (VRTS) : Free Stock Analysis Report
Artisan Partners Asset Management Inc. (APAM) : Free Stock Analysis Report
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