Franklin Resources stock rated Underweight, reflecting ongoing challenges and mixed performance

On Tuesday, Barclays initiated coverage on shares of Franklin Resources (NYSE: NYSE:BEN), assigning an Underweight rating with a price target of $20.00. The assessment by the firm points to a mixed financial outlook for the investment management company, noting challenges in its active equities and fixed income segments.

Franklin Templeton, the brand under which Franklin Resources operates, has experienced ongoing pressure in its core investment areas. Despite the recent acquisition of Putnam Investments, which is expected to provide some relief, there are still concerns about the company's performance. The alternatives business of Franklin Templeton has seen growth through mergers and acquisitions, yet it has been facing issues with low inflows and negative performance over the previous eight quarters.

Barclays highlighted the flat assets under management (AUM) in the alternatives sector, which has remained unchanged over the past six quarters. This stagnation is seen as a key factor in the firm's decision to set the price target and rating. Additionally, the firm notes potential regulatory and reputational risks surrounding the Western fixed income franchise, which could affect Franklin Templeton's future performance.

The price target of $20.00 reflects Barclays' cautious stance on the stock, indicating a conservative outlook on the company's ability to turn around its alternatives business and mitigate risks. Franklin Resources has not yet responded publicly to the initiation of coverage or the comments made by Barclays.

In other recent news, Franklin Templeton has seen a series of significant developments. The company reported an adjusted operating income of $424.9 million in its recent earnings call, a 1.3% increase from the previous quarter, and a 15% year-over-year increase in assets under management, ending the quarter with $1.65 trillion.

Amidst an SEC inquiry, Franklin Templeton closed its $2 billion Macro Opportunities fund, following the departure of Ken Leech from Western Asset Management. Michael Buchanan has since been appointed as the sole chief investment officer of Western Asset Management.

On the analyst front, TD Cowen maintained a Hold rating on Franklin Resources, raising the price target to $24, while BMO Capital lowered its price target to $26 due to concerns about the company's financial performance. These changes come amidst an internal investigation into past trade allocations involving Treasury derivatives in select accounts managed by Western Asset.

In a significant step for the broader financial sector, Franklin Templeton, along with several other financial institutions, launched the first U.S. exchange-traded funds tied to ether. The company also maintained its quarterly cash dividend at $0.31 per share, marking a 3.3% increase from the same quarter of the previous year.

InvestingPro Insights

Franklin Resources (NYSE: BEN) presents a mixed picture according to the latest data and insights from InvestingPro. The company's market capitalization stands at $10.85 billion, with a P/E ratio of 12.9, which is lower than the adjusted P/E ratio for the last twelve months as of Q3 2024, at 9.91. This suggests a more favorable valuation in recent terms. Despite analysts revising their earnings downwards for the upcoming period, Franklin Resources has a notable track record of dividend consistency, having maintained payments for 44 consecutive years, which could appeal to income-focused investors.

Moreover, the company's liquid assets exceed its short-term obligations, indicating a solid liquidity position. However, it is trading at a high PEG ratio of 43.86, which may raise questions about growth relative to earnings. The InvestingPro platform offers a broader set of analytical tools and additional tips, with 7 more insights available for Franklin Resources at https://www.investing.com/pro/BEN, providing investors with a comprehensive understanding of the company's financial health and market position.

Investors should consider these metrics and InvestingPro Tips as part of their due diligence, especially given the recent price volatility, with the stock taking a significant hit over the last week and trading at approximately 68.4% of its 52-week high. The company's commitment to profitability, as evidenced by its performance over the last twelve months, alongside analysts' predictions of profitability for the year, may offer a counterbalance to the challenges highlighted in Barclays' report.

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