Why Franklin Resources Stock Was Down 3.6% on Tuesday

What happened

Franklin Resources (BEN -3.62%) saw its stock price drop 3.6% on Tuesday to $22.60 per share. The asset management firm had been down as much as 8% on the day at 11:33 a.m. ET but rallied somewhat in the afternoon.

All the major indexes were down on Tuesday. The Dow Jones Industrial Average dropped 60 points (-0.2%), the S&P 500 fell 13 points (-0.3%), and the Nasdaq was down 89 points (-0.8%).

So what

The asset management firm posted its fiscal fourth-quarter and fiscal year-end 2022 numbers on Tuesday and it was a mixed bag. It beat revenue and earnings estimates, but the totals were down given the difficult market conditions for the firm, which runs the Franklin Templeton fund family among other investments.

Franklin Resources posted operating revenue of $1.94 billion, which was down 11% year over year, and adjusted earnings per share (EPS) of $0.78, down 38% from $1.26 per share a year ago this quarter. Analysts anticipated revenue of $1.5 billion and EPS of $0.70.

The firm ended the quarter with about $1.3 trillion in assets under management, down 15% year over year due to market depreciation of assets, distributions, and long-term net outflows, all stemming from the near bear market conditions.

“Since January, macroeconomic and geopolitical uncertainty have resulted in significant volatility and correlated declines in both global equity and fixed income markets. Our assets under management and flows were impacted by these unprecedented conditions and industrywide pressures,” President and CEO Jenny Johnson said.

Now what

It has been one of the worst years in recent years for assert managers, given the performance of the stock market, which has been in bear market territory for most of the year. But a market rally in October certainly gets Franklin Resources and other money managers off to a good start in this quarter as the Dow Jones Industrial Average soared nearly 14% higher in October.

Also, Franklin Resources has been making moves to expand its offerings into alternative investments. In April, it closed on its acquisition of Lexington Partners, a private equity manager. Today, it closed on its acquisition of Alcentra, a Europe-based manager of credit and private debt.

“Pro forma for Alcentra, alternative assets total $260 billion as of September 30, 2022, making Franklin Templeton one of the largest managers of alternative assets with a meaningful presence in the key alternative categories,” Johnson said.

As the market improves, Franklin’s prospects should improve along with it. But in the meantime, Franklinʻs growing alternative investment business gives it a revenue stream that does not typically correlate to public markets.

Also, Franklin is an excellent dividend stock, with a $0.29 quarterly payout at a 5.1% yield. It is a Dividend Aristocrat, having raised its dividend for 40 straight years. 

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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