Why Franklin Resources stock fell 3.6% on Tuesday

What happened

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

All major indexes were down on Tuesday. The Dow Jones Industrial Average fell by 60 points (-0.2%), the S&P500 fell by 13 points (-0.3%) and the Nasdaq down 89 points (-0.8%).

So what

The asset management firm released its fourth quarter and year-end 2022 numbers on Tuesday and it was a mixed bag. It beat revenue and profit estimates, but totals were down given tough market conditions for the company, which runs the Franklin Templeton family of funds, among other investments.

Franklin Resources reported operating revenue of $1.94 billion, 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 were expecting revenue of $1.5 billion and EPS of $0.70.

The company ended the quarter with approximately $1.3 trillion in assets under management, down 15% year-over-year due to market asset depreciation, distributions and net outflows to term, all resulting from near-bearish market conditions.

“Since January, macroeconomic and geopolitical uncertainty has led to significant volatility and correlated declines in global equity and fixed income markets. Our assets under management and flows have been impacted by these unprecedented conditions and pressures industry-wide,” said President and CEO Jenny Johnson.

Now what

It was one of the worst years in recent years for assertion managers, given the performance of the stock market, which has been in bearish territory for most of the year. But a market rally in October certainly gets Franklin Resources and other fund managers off to a strong start this quarter, with the Dow Jones Industrial Average climbing nearly 14% in October.

Additionally, Franklin Resources has taken steps to expand its offerings to alternative investments. In April, it completed its acquisition of Lexington Partners, a private equity manager. Today, it completed its acquisition of Alcentra, a credit and private debt manager based in Europe.

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

As the market improves, Franklin’s outlook should improve along with it. But in the meantime, Franklin’s growing alternative investment activity provides him with an income stream that is generally uncorrelated to the public markets.

Additionally, Franklin is an excellent dividend-paying stock, with a quarterly payout of $0.29 at a yield of 5.1%. He’s a dividend aristocrat, having raised his dividend for 40 straight years.

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

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