The shares of State Street (NYSE: STT ) has lost 5% YTD, compared to the 9% increase in the S&P500 over the same period. Further, the stock is currently trading at $74 per share, which is 14% below its fair value of $85 – Trefis’ estimate for State Street’s rating.
Amidst the current financial backdrop, STT stock has seen little change, moving slightly from levels of $75 in early January 2021 to around $75 now, versus an increase of around 40% for the S&P 500 over this roughly 3-year period . Overall, the performance of STT stock with respect to the index was lackluster. Returns for the stock were 28% in 2021, -17% in 2022, and 0% in 2023. By comparison, returns for the S&P 500 were 27% in 2021, -19% in 2022, and 24% in 2023 – indicating. that STT underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – it’s been tough over the past few years for individual stocks; for heavyweights in the Financial sector including JPM, V and MA, and even for the mega-cap stars GOOG, TSLA and MSFT. In contrast, the Trefis High Quality (HQ) Portfoliowith a collection of 30 shares, has outperformed the S&P 500 every year during the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller coaster as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and high interest rates, could STT face a similar situation as it did in 2023 and underperforms the S&P over the next 12 months – or will it see a sharp jump?
The watchdog banking giant posted better-than-expected results in the fourth quarter of 2023. It reported total revenues of $3.04 billion – down 4% yoy, mainly due to a 5% drop in the investment services segment. However, it was partially offset by a 9% increase in the investment management unit. In particular, Assets under Custody and Administration (AuC/A) and Assets under Management (AuM) were USD 41.81 trillion (up 14% yoy) and USD 4.13 trillion (up 19%) respectively at the end of the quarter. On the cost front, total expenses as a percentage of revenues witnessed unfavorable growth, leading to an adjusted net income of $ 172 million – down 57% yoy.
The bank’s top line decreased by 2% year-over-year to $11.94 billion in FY 2023. It was mainly due to a 1% decrease in fee income and a drop in total other income from -$2 million to -$294 million. However, the negative impact was somewhat offset by a 9% improvement in the net interest income (NII). On the expenses side, total expenses increased by 9% over the same period. Overall, adjusted net income was down 32% yoy to $1.8 billion.
moving forward, State Street earnings are projected to remain around $12.3 billion in FY2024. Additionally, STT’s adjusted net income margin is likely to see a slight drop compared to the prior year, leading to annual GAAP EPS of $5.51. This coupled with a P/E multiple of just under 16x will lead to a valuation of $85.
returns | March 2024 MTD (1) |
2024 YTD (1) |
2017-24 Total (2) |
STT Return | 0% | -5% | -5% |
S&P 500 Return | 2% | 9% | 131% |
Hit Enhanced Value Portfolio | 1% | 5% | 647% |
(1) Returns as of 3/21/2024
(2) Cumulative total profit since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.