State Street Earnings Preview: Will State Street Report An Earnings Miss For FY 2019 Amid Asset Management Headwinds?

by Trefis Team
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State Street (NYSE: STT) will release its Q4 and full-year 2019 results on Friday, January 17. Trefis details expectations from the custody banking giant in an interactive dashboard, parts of which we highlight below. We believe that State Street will likely report an earnings miss for FY19, although the difference won’t be too significant. The bank’s revenues would have decreased to $11.61 billion in 2019 (slightly lower than the consensus estimate of $11.64 billion) from $12 billion in 2018, primarily due to the weaker interest rate environment coupled with asset management headwinds. Also, the EPS figure is likely to have fallen to $5.83 from $6.40 in 2018 due to a combination of lower revenues and higher expenses, which would narrowly miss the consensus estimate of $5.89. Further, we believe that weaker-than-expected revenues and earnings for FY 2019 will likely result in negative movement in State Street’s’ stock price once it announces earnings. Our forecast indicates that State Street’s Valuation is $66 a share, which is roughly 20% below the current market price of around $82.

Trefis shines the spotlight on key assumptions and data for State Street, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for State Street’s FY19 earnings in our interactive dashboard.

(1) State Street’s revenues would decrease by 3.1% to $11.6 billion in 2019; slightly below consensus estimates

  • Trefis estimates State Street’s 2019 revenues to be $11.61 billion, slightly below the consensus estimate of $11.64 billion.
  • Although revenues have grown 16% from $10.3 billion in 2016 to $12 billion in 2018, we expect it to drop 3.1% in 2019 due to weaker interest rate forecasts coupled with asset management headwinds.
  • Investment Servicing revenues are likely to decrease by 2.7% from $10 billion in 2018 to $9.8 billion in 2019 due to a 5% decline in Asset Servicing revenues.
  • Further, Investment Management revenues would have dropped by 4.8% from $2 billion in 2018 to $1.9 billion in 2019
  • Notably, we expect State Street’s revenues to remain unchanged around $11.6 billion for 2020 due to challenging industry conditions.

Our interactive dashboard analysis, ‘How Does State Street Make Money?‘, provides an in-depth view of the company’s revenues along with our forecasts for 2020.

 

(2) EPS expected to drop 8.9% from $6.40 in 2018 to $5.83 in 2019; slightly below consensus estimates

  • State Street’s 2019 earnings per share (EPS) is likely to be $5.83 per Trefis analysis, 1% lower than the consensus estimate of $5.89 per share.
  • A decrease in revenues coupled with a marginally increase in expenses will reduce the EPS figure despite the 7% decline in share count over the year.
  • As we forecast State Street’s Revenues to shrink even as Expenses remain broadly level in 2019 (-3.1% revenue growth vs. 0% expense growth), this will result in a 255 bps decrease in State Street’s Net Income Margin figure from 20.1% in 2018 to 17.6% in 2019.
  • For 2020, we believe that a slight decrease in expenses coupled with almost the same revenue figure will result in the net income margin figure increasing to 17.9%

Our interactive dashboard analysis, How Does State Street Spend Its Money, provides an in-depth view of the company’s expenses.

(3) Stock price estimate ~20% lower than the market price

  • A trailing P/E multiple of 11.4x looks appropriate for State Street’s stock, as opposed to the implied P/E multiple of 13.8x.
  • Trefis’ forecast for State Street’s 2019 earnings, as well as P/E multiple, are below market expectations, which is why we estimate a fair value of $66 for State Street’s stock – roughly 20% lower than the current market price.

 

See all Trefis Price Estimates and Download Trefis Data here

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