UBS Downgrades Franklin Resources To Sell: 'Flows Likely To Get Worse Before They Get Better'

UBS's Brennan Hawken downgraded Franklin Resources, Inc. BEN to Sell from Neutral with a price target of $28.00 from $39.00. The rating change came after the company reported earnings short of estimates.

The analyst was specifically concerned about the company's exposure to the Department of Labor.

"Of the asset managers we cover, we see Franklin as most at risk from the impact of the Department of Labor's fiduciary rule given the firm's reliance on the broker sold channel coupled with weak investment performance," said Hawken.

The analyst thought Franklin Resource's outflows of $100 billion over the past six quarters will only accelerate in 1H17 due to brokerage liability and narrow shelf space. "The recent pace of outflows at BEN confirms our concerns around relying on just a handful of strategies to drive growth," said Hawken. Specifically, the analyst noted several of Franklin's "flagship" funds have deteriorated over 60% of retail assets under management.

As a result, the UBS analyst expected sustained negative organic growth, well below the positive growth expected for the sector.