Franklin Resources (BEN) is showing signs of an "early-stage turnaround" as improving core fund flows and moderating outflows at Western Asset Management strengthen business momentum, Morgan Stanley said in a report emailed Wednesday.

The investment bank said Franklin has posted nine consecutive quarters of "positive net flows" excluding Western, while quarterly Western-related outflows have declined to about $4 billion from a peak of roughly $68 billion a year earlier.

Franklin's "repositioning toward higher-growth areas," including separately managed accounts, ETFs and alternatives, is helping stabilize the firm's "trajectory," though "fee compression" and shifts toward "lower-fee products" remain structural challenges, according to the report.

Morgan Stanley upgraded Franklin Resources to equal-weight from underweight and raised the price target to $31 from $21, citing improving "flow dynamics" and a more balanced risk-reward profile.

Price: 31.13, Change: +0.67, Percent Change: +2.20