BofA lifts Franklin Resources target to $20, keeps underperform rating

On Monday, BofA Securities adjusted its outlook on Franklin Resources (NYSE:BEN) stock (currently trading at $21.49), raising the price target to $20.00 from the previous $18.00, while maintaining an Underperform rating. According to InvestingPro data, the stock has shown significant momentum with a 9.5% return over the past week, though analysis suggests the stock may be trading above its Fair Value. The revision was based on updated earnings per share (EPS) estimates for the coming years, which now stand at $2.12 for 2025, $2.28 for 2026, and $2.49 for 2027. These figures were adjusted following Franklin Resources’ new expense guidance for the second quarter of 2025 and the first quarter of 2027, which anticipates a net decline in expenses ranging from $200 million to $250 million year-over-year, assuming market conditions remain constant. The company maintains a strong dividend track record, having paid dividends for 44 consecutive years, with a current yield of 5.76%.

The price objective increase is founded on a consistent 8x multiple applied to the company’s estimated calendar year 2027 EPS. Despite the new target suggesting a potential total return of negative 7%, BofA Securities’ analysis indicates a better outlook for Franklin Resources’ financial performance.

Franklin Resources recently reported earnings that surpassed expectations for core profits, with InvestingPro analysis indicating the company’s overall financial health score as "FAIR" with particularly strong cash flow metrics. However, the company also disclosed significant net redemptions, which were consistent with prior assets under management disclosures. For deeper insights into Franklin Resources’ financial health and future prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro. Additionally, Franklin Resources announced it aims to reduce its total cost base by 5% by the first quarter of fiscal year 2027 as part of its additional expense savings initiatives.

The market responded favorably to the news of the expense savings, which seemed to overshadow concerns regarding the substantial net outflows of $70 billion that Franklin Resources experienced. These outflows were anticipated and, according to BofA Securities, had already been factored into the stock’s price. Franklin Resources’ proactive measures to streamline its cost structure appear to have been well-received by investors, as reflected in the positive movement of the stock following the announcement.

In other recent news, Franklin Resources demonstrated robust financial performance in their first quarter earnings, surpassing analyst expectations. The company reported an adjusted earnings per share of $0.59 and a strong revenue of $2.25 billion. Despite a year-over-year decline in adjusted net income, Franklin Resources showed progress in key growth areas. Analyst Glenn Schorr from Evercore ISI noted positive trends such as higher gross sales and a solid unfunded pipeline.

Additionally, Goldman Sachs analyst Alexander Blostein upgraded Franklin Resources from Sell to Neutral, reflecting a shift in perspective regarding the company’s financial outlook. Despite significant organic decline impacting earnings and share price, Blostein expects the rate of deterioration to slow down throughout 2025.

However, Franklin Resources reported a decrease in assets under management (AUM) to $1.63 trillion as of October 2024, attributed to negative market conditions and significant long-term net outflows. The company also faced challenges due to concerns about its Western Asset Management Company (WAMCO) division and leverage issues, leading TD Cowen to adjust the company’s outlook, reducing the price target from $20.00 to $18.50.

In response to these challenges, Franklin Resources revealed a strategic shift during its recent earnings call. The company intends to raise $100 billion in private markets over the next five years and significantly expand its ETF and Canvas AUM. Despite these developments, Franklin Resources experienced a rise in adjusted operating expenses and a decline in both adjusted operating income and adjusted net income. These recent developments highlight the company’s efforts to navigate a challenging market environment.

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