Franklin Templeton has had a rough couple of years, yet Moody's sees lights at the end of the tunnel.

Neal Epstein Moody's Investors Service Vice President, Senior Credit Officer

Yesterday Moody's Investors Service's Neal Epstein (vice president, senior credit officer) and Dean Ungar (vice president, senior analyst) released an "issuer in-depth" report on Franklin parent Franklin Resources [profile]. And they are standing by their A1, stable rating of the San Mateo, California-based, publicly-traded mutual fund shop, despite an AUM drop of about 20 percent since June 2014. The subtitle of the report is "Core Strengths Will Help Firm Overcome Challenges".

The good news, as the Moody's folks see it, is that Franklin has big scale, massive distribution capabilities, and "a rock-solid balance sheet" with plenty of cash. For example, despite the big AUM drop, Franklin still has EBITDA that's nearly twice its outstanding debt total of $1.4 billion.

Epstein and Ungar of Moody's also argue that, when it comes to the investing environment and Franklin's strategies, the worm will turn. Value investing won't be out of favor forever, and Franklin is even moving into the smart beta and active ETF space. 

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