Alternative Assets And Global Markets Will Open New Avenues

Key Takeaways

• Strategic expansion into alternative assets and ETFs is expected to drive long-term revenue growth and market diversification.
  
• Geographic and operational initiatives are enhancing revenue potential and margins through effective market capture and cost savings.
  
• Geopolitical uncertainties and competition in alternatives are pressuring profitability and growth, with increased integration costs and net outflows affecting revenue and asset growth.

Catalysts

A publicly owned asset management holding company.

• Franklin Templeton’s institutional won but unfunded pipeline reached $20.4 billion, its highest level since 2022, indicating future AUM growth as these mandates fund, which will likely boost future revenues.
  
• The company is expanding into alternative assets, with significant fundraising success in private markets and projections indicating that approximately $800 billion will be allocated industry-wide to democratize alternatives over the next 5 years. This focus positions them to capture a significant share, supporting long-term revenue growth and diversification.
  
• Franklin Templeton reported growth in specific strategic areas, such as ETFs and retail SMAs, with record AUMs and positive flows for multiple consecutive quarters. These efforts are anticipated to drive future revenue increases due to continued popularity and tax advantages of these investment vehicles.
  
• Geographic diversification and local presence in over 30 countries allow Franklin Templeton to capture flows from markets exhibiting strong growth trends, contributing to potential revenue expansion and better margins due to advantageous regional dynamics.
  
• Operational efficiencies are being pursued through several expense initiatives, expected to result in $200-$250 million in cost savings by fiscal 2026, likely improving net margins and contributing to earnings growth.

Franklin Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Franklin Resources's revenue will decrease by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 13.9% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $1.86) by about May 2028, up from $358.3 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $1.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.4x on those 2028 earnings, down from 29.4x today. This future PE is lower than the current PE for the US Capital Markets industry at 25.0x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.93%, as per the Simply Wall St company report.

Franklin Resources Future Earnings Per Share Growth

Risks

• Heightened geopolitical trade policy and economic uncertainties could lead to market volatility and affect profitability due to weaker global economic activity and margin pressures, impacting net margins and earnings.
  
• The erosion of profitability driven by softer U.S. growth, government spending cuts, and potential economic repercussions from tariffs may pressure revenues and margins.
  
• Increased execution risk and costs associated with integrating Western's corporate functions into Franklin Templeton could affect operational efficiencies and overall margins.
  
• Rising competition in the alternatives and wealth management channels, alongside market volatility, may challenge Franklin's ability to maintain its growth trajectory and improve revenue.
  
• Continuing long-term net outflows, particularly from Western Asset, combined with market challenges, could limit overall assets under management growth, impacting future revenues.

Valuation

• The analysts have a consensus price target of $19.136 for Franklin Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $21.5, and the most bearish reporting a price target of just $14.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.3 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 12.4x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $20.07, the analyst price target of $19.14 is 4.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.