State Street Stock Outperformed The Consensus In Q2, What’s Next?

State Street’s stock (NYSE: STT) has gained 10% YTD, as compared to the 17% rise in the S&P500 over the same period. Notably, State Street’s peer BNY Mellon’s stock (NYSE: BK) is up 12% YTD. Overall, STT stock is currently trading at $85 per share, which is 2% below its fair value of $87 – Trefis’ estimate for State Street’s valuation. 

Amid the current financial backdrop, STT stock has witnessed gains of 15% from levels of $75 in early January 2021 to around $85 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the increase in STT stock has been far from consistent. Returns for the stock were 28% in 2021, -17% in 2022, and 0% in 2023. In comparison, returns for the S&P 500 have been 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 – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over 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 ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could STT face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The custody banking giant surpassed the street estimates in the second quarter of 2024. It reported total revenues of $3.19 billion – up 3% y-o-y, mainly due to a 2% rise in the noninterest revenues and a 6% gain in net interest income (NII). The fee revenues were up due to higher management fees and foreign exchange service revenue, more than offsetting the negative impact of a 2% drop in the servicing fees. Similarly, the NII benefited from higher interest-earning assets, somewhat offset by a decrease in net interest margin due to higher funding costs. Further, Assets under Custody & Administration (AuC/A) and Assets under Management (AuM) were $44.31 trillion (up 12% y-o-y) and $4.4 trillion (up 16%) respectively at quarter-end. Overall, the adjusted net income reduced 7% y-o-y to $711 million. The decrease was due to a higher effective tax rate as compared to the year-ago period.

The bank’s top line decreased 2% y-o-y to $11.94 billion in FY 2023. It was primarily because of a marginal decrease in the fee revenue and lower total other income, partially supported by a 9% growth in the net interest income (NII). On the expense front, total expenses as a % of revenues witnessed an unfavorable increase over the same period. Altogether, the adjusted net income decreased 32% y-o-y to $1.8 billion.

Moving forward, we expect the third quarter results to be on a similar line. Overall, State Street’s revenues are forecast to remain around $12.55 billion in FY2024. Additionally, STT’s adjusted net income margin is likely to see some drop in the year, leading to an annual GAAP EPS of $5.71. This coupled with a P/E multiple of just above 15x will lead to a valuation of $87.

[1] Returns as of 7/18/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates