Secular Trends Will Drive Digital Tokenization And Alternative Expansion

Key Takeaways

• Strong institutional inflows, innovative product expansion, and global reach position Franklin Resources for outsized asset growth and new revenue streams ahead of market expectations.
  
• Early leadership in alternatives, blockchain, and retirement solutions is set to boost margins, outpace competitors, and unlock high-margin, recurring fee opportunities worldwide.
  
• Fee compression, challenging outflows, integration costs, severe competition, and regulatory pressures all threaten future profitability, market share, and operational flexibility.

Catalysts

A publicly owned asset management holding company.

• While analyst consensus expects future AUM growth from the $24.4 billion institutional won but unfunded pipeline, the sustained acceleration of positive inflows excluding Western-seven consecutive quarters now-alongside strengthening mandates from insurance and sovereign clients, points toward an AUM growth inflection that could exceed expectations and propel top-line revenue higher for years.
  
• Analysts broadly see alternatives expansion as a driver of long-term growth; however, Franklin's rapid and globally integrated buildout-with the Apera acquisition pushing private credit AUM to $90 billion, strong wealth channel distribution, and first-mover advantages in democratizing access-positions the firm to outpace market share forecasts, dramatically boosting net margins and earnings through higher fee structures.
  
• Franklin's pioneering leadership in blockchain and tokenization, evidenced by the fully on-chain Benji money market fund and white-label wallet infrastructure, is likely to fundamentally lower operational costs and create entirely new tech-driven distribution partnerships, accelerating margin expansion and opening high-growth digital revenue streams.
  
• The company is set to fully capture a global boom in investable assets and cross-border flows, with 30% of AUM outside the U.S., boots-on-the-ground relationships in over 30 countries, and recent wins with large sovereign and government funds, all uniquely positioning Franklin to capitalize on rising demand for professional asset management and unlocking new client segments to drive revenue.
  
• Franklin is leveraging its scale, diverse product set, and deep distribution into the retirement and defined contribution markets-targeting over $120 billion in DC assets and integrating private markets into target date funds-to become a dominant global retirement solutions provider as long-term savings needs accelerate, resulting in high-quality, recurring fee-based growth and margin uplift.

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 grow by 2.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.1% today to 19.2% in 3 years time.
• The bullish analysts expect earnings to reach $1.8 billion (and earnings per share of $3.67) by about August 2028, up from $270.9 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 11.3x on those 2028 earnings, down from 49.1x today. This future PE is lower than the current PE for the US Capital Markets industry at 26.6x.
• Analysts expect the number of shares outstanding to decline by 0.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.79%, as per the Simply Wall St company report.

Franklin Resources Future Earnings Per Share Growth

Risks

• The continued structural shift from active to passive investment strategies is exerting downward pressure on fees, and Franklin's need to lower fees in certain institutional mandates-as noted in the discussion of its stable but not growing fee rates-threatens future revenues and net margins.
  
• Persistent net outflows from flagship mutual funds, particularly at Western Asset Management, reflect industrywide challenges for active management and could lead to declining assets under management and reduced earnings, especially as active products continue to face heightened competition and client attrition.
  
• Franklin is experiencing significant integration and operational complexity due to its acquisition-driven expansion, with management citing elevated expenses from integration (for example, the Apera and Alcentra acquisitions), putting sustained pressure on profitability and potentially limiting positive operating leverage.
  
• The intensifying industry consolidation and emergence of mega-managers with superior scale in technology and distribution (such as BlackRock and Vanguard) make it challenging for mid-sized firms like Franklin to maintain pricing power and grow market share, ultimately constraining revenue growth opportunities.
  
• Regulatory pressures, particularly in litigious areas like defined contribution retirement plans, increase compliance burdens and generate uncertainty around introducing new products such as alternatives in retirement solutions, raising the risk of higher ongoing costs and potential legal liabilities that could negatively impact net margins.

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 $9.3 billion, earnings will come to $1.8 billion, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 8.8%.
• Given the current share price of $25.63, the bullish analyst price target of $31.0 is 17.3% 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.