State Street Stock To Edge Past The Consensus In Q3?

State Street (NYSE: STT) is scheduled to report its fiscal Q3 2022 results on Tuesday, October 18, 2022. We expect State Street to edge past the consensus estimates. The custody banking giant posted mixed results in the last quarter, with earnings beating the consensus but revenues missing the mark. Its total revenues decreased by 3% y-o-y to $2.95 billion. It was driven by a 6% drop in the total fee income, partially offset by a 25% growth in the net interest income (NII). While the interest rates and outstanding loan balances improved in the quarter benefiting NII, the drop in client assets negatively impacted the fee income. Notably, the Assets under Custody & Administration (AuC/A) and Assets under Management (AuM) fell 10% and 11% y-o-y, respectively. We expect the same trend to continue in the third quarter.

Our forecast indicates that State Street’s valuation is $82 per share, which is 35% above the current market price of just above $61. Our interactive dashboard analysis on State Street’s Earnings Preview has more details. 

(1) Revenues expected to be just ahead of the consensus estimates

State Street’s revenues of $6 billion in the first half of 2022 were marginally above the year-ago levels. It was due to a 17% y-o-y increase in NII, almost offset by a 4% drop in the total fee income.

• The bank derives more than 80% of the total revenues from fee income. Further, servicing fees and management fees, which are charged as a % of AuC/A & AuM respectively, contribute a majority chunk of it. Markedly, the AuC/A decreased 13% between December end and Q2, followed by a 16% decline in AuM over the same period. We expect the same trend to continue in Q3.
• The NII increased by 17% over the first two quarters of 2022 due to higher interest rates and growth in interest-earning assets. We expect the third-quarter results to be on similar lines.
• Overall, we forecast State Street’s revenues to touch $12.1 billion for FY2022.

Trefis estimates State Street’s fiscal Q3 2022 revenues to be around $2.99 billion, just above the $2.97 billion consensus estimate. 

(2) EPS is likely to beat the consensus estimates

State Street Q3 2022 adjusted earnings per share (EPS) is expected to be $1.81 per Trefis analysis, almost 2% above the consensus estimate of $1.78. The bank’s adjusted net income grew 6% y-o-y to $1.3 billion in the first half of 2022. It was partly due to the growth in the top line and partly due to a slight decrease in expenses as a % of revenues. We expect the same trend to drive the third-quarter results. Overall, State Street is likely to report an annual EPS of $6.84 for the full-year 2022.

(3) Stock price estimate is 35% higher than the current market price

We arrive at State Street’s valuation, using an EPS estimate of around $6.84 and a P/E multiple of 12x in fiscal 2022. This translates into a price of $82, which is 35% above the current market price of around $61. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

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