Global Investable Assets And ESG Trends Will Shape Future Expansion

Key Takeaways

• Franklin's leadership in private market products and global expansion positions it to capture accelerated asset growth, especially in emerging markets and sustainable investments.
  
• Strategic investments in digital infrastructure and AI are expected to drive margin expansion and earnings growth, even amid market volatility and industry fee pressures.
  
• Outflows, industry shifts to passive products, fee pressures, and integration challenges threaten profitability, asset growth, and Franklin Resources' ability to retain and attract future clients.

Catalysts

A publicly owned asset management holding company.

• Analyst consensus expects the $20.4 billion institutional won-but-unfunded pipeline to deliver future AUM growth, but this likely understates the full impact: accelerating asset allocation shifts and global volatility could drive significantly higher funding conversion and mandate wins, providing robust upside to revenue and management fee expectations.
  
• While analysts broadly agree that the democratization of alternatives will unlock substantial revenue, Franklin's first-mover advantage in perpetual, wealth-channel-oriented private market products and advisory infrastructure could allow it to capture a disproportionate share of the $800 billion+ projected industry inflows, materially boosting recurring fee income and firm-wide net margins.
  
• Franklin's global footprint and local presence in over 30 countries uniquely position it to capitalize on the rapid rise of investable assets and wealth in emerging markets, with geographic diversification driving sustainable AUM growth and expanding revenue bases as cross-border flows accelerate.
  
• Rapidly growing demand for ESG and sustainable investments, together with Franklin's ongoing product development and early leadership, is set to generate higher long-term inflows and resilient fee rates as clients globally increase allocations to sustainable strategies, supporting both revenue growth and earnings durability.
  
• Persistent investment in digital platforms and AI, coupled with a nimble cost structure and technology-driven operating model, could unlock greater operating leverage and margin expansion than expected, enabling sustained growth in earnings per share even in volatile or fee-compressed industry environments.

Franklin Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Franklin Resources compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Franklin Resources's revenue will decrease by 0.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.1% today to 19.4% in 3 years time.
• The bullish analysts expect earnings to reach $1.7 billion (and earnings per share of $3.56) by about July 2028, up from $358.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.2x on those 2028 earnings, down from 36.0x today. This future PE is lower than the current PE for the US Capital Markets industry at 29.1x.
• Analysts expect the number of shares outstanding to grow by 0.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.31%, as per the Simply Wall St company report.

Franklin Resources Future Earnings Per Share Growth

Risks

• The persistent outflows at Western Asset, a key subsidiary, along with $26.2 billion in long-term net outflows for the quarter, highlight a structural challenge for Franklin Resources, as chronic outflows and weak performance at flagship funds can continue to erode assets under management, fee revenue and eventually pressure overall earnings.
  
• The ongoing industry-wide shift from actively managed funds toward passive vehicles like ETFs and index funds is compressing Franklin Resources' addressable market as an active manager, contributing to slow growth in AUM and increased competition, which in turn threatens future revenue growth and margin stability.
  
• Continued fee compression across asset management, coupled with client demands for lower-cost investment solutions, has kept Franklin's effective fee rate flat at 38 basis points and is likely to further reduce profitability and compress net margins over time as high-margin products face competitive pricing.
  
• Franklin Resources' aging client base and the relatively slow pace of digital adoption create a risk that younger, tech-savvy investors will choose fintech solutions and digital-first platforms, putting at risk the company's ability to attract and retain new client assets and impacting long-term revenue sustainability.
  
• Integration challenges and ongoing high expenses related to recent acquisitions, such as Legg Mason and Western Asset, have made it difficult to restructure the company's cost base efficiently, resulting in ongoing elevated operating expenses that may limit net margin expansion and earnings growth, even as expense-saving efforts continue.

Valuation

• The assumed bullish price target for Franklin Resources is $31.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Franklin Resources's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $31.0, and the most bearish reporting a price target of just $19.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $8.9 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 8.3%.
• Given the current share price of $24.56, the bullish analyst price target of $31.0 is 20.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.