Franklin Resources Inc. (BEN) reported preliminary assets under management (AUM) of $733.1 billion by its subsidiaries for the end of April. Results were up 4.2% from $703.5 billion as of March 31, 2011 and 21.7% from $602.5 billion as of April 30, 2010.

At April end, total equity assets were $321.3 billion, up 4.0% sequentially and 21.4% year over year. Of the total equity assets, roughly 73% were from international sources while the remaining 27% were from the U.S.

Total fixed income assets were $288.5 billion, up 4.8% from $275.2 billion as of March 31, 2011 and 29.6% from $222.6 billion as of April 30, 2010. Of the total, tax-free assets accounted for only 24%, while the remaining 76% were taxable.

Franklin recorded $116.7 billion in hybrid assets, up 2.9% from $113.4 billion as of March 31, 2011 and 6.7% from $109.4 billion as of April 30, 2010. Cash management funds as reported were $6.6 billion, up from $6.0 billion as of March 2011 and $5.9 billion in April 2010.

Earnings Recap

Franklin’s second-quarter 2011 earnings of $2.25 per share outpaced the Zacks Consensus Estimate of $2.00. Results reflected strong growth in revenue and higher AUM, partially offset by increased operating expenses.

Our Take

Franklin’s global footprint is an exceptionally favorable strategic point, since its AUM is well diversified. This coupled with a strong balance sheet is expected to cushion the company. However, Franklin is not immune to the volatile economic environment, which has been made worse by the costly regulatory environment. Besides, the regulatory restrictions could negatively affect the company’s AUM and increase its costs.

Currently, Franklin retains a Zacks #1 Rank, which translates to a short-term ‘Strong Buy’ rating. Moreover, considering the fundamentals, we maintain our long-term ‘Outperform’ rating on the stock. However, Franklin’s peer – Invesco Ltd. (IVZ) retains a Zacks#3 Rank (a short-term ‘Hold’ rating).

 
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