Higher Tax Rates Offset Franklin Resources' (BEN) 1Q Earnings - Cuts Price Target to $34

UBS maintained a Neutral rating on Franklin Resources (NYSE: BEN), and cut the price target to $34.00 (from $41.00), following the company's 1Q earnings report. Franklin reported EPS of $0.74, a penny below consensus of $0.75. Operating results were slightly better than estimated, but were offset by a marginally higher tax rate and higher net income attributable to noncontrolling interests.

Analyst Brennan Hawken commented, "Given the tough market backdrop to start the year, we believe the outperformance of BEN shares today reflects the company's ability to cut costs further and buy competitors at attractive prices. However, with the DOL fiduciary proposal (see our Fiduciary rule becoming a reality and Evidence Lab survey notes for more info) likely to be finalized in the next few months, we remain somewhat concerned about potential disruptions in the retail retirement market. Specifically, 40% of sales are into the advisor channel (i.e. fee-based accounts that use I-class shares), which implies the other 60% is into commission based accounts (i.e. 12b-1 products), a portion of which would be exposed to the DOL fiduciary proposal, though what portion is exposed at this stage is unclear. Also notable, BEN's VA business is down to about 6% ($42 billion) of total AUM following a $5 billion redemption by a large sub-advised client (previously disclosed), leaving another $5 billion potentially at risk."

For an analyst ratings summary and ratings history on Franklin Resources click here. For more ratings news on Franklin Resources click here.

Shares of Franklin Resources closed at $32.76 yesterday.

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