Where Is State Street Stock Headed?

STT: State Street logo
State Street

State Street’s stock (NYSE: STT) has gained 12% YTD, as compared to the 4% rise in the S&P500 over the same period. Further, the stock is currently trading at $87 per share, which is 10% below its fair value of $96 – Trefis’ estimate for State Street’s valuationThe custody banking giant topped the consensus estimates in the fourth quarter of 2022. Its total revenues increased to $3.15 billion – 3% above the year-ago level. It was primarily due to a 63% jump in the net interest income (NII), partially offset by a 6% drop in the total fee income. The NII benefited from improvements in the interest rates and higher interest-earnings assets. That said, the fee income mainly suffered due to lower market valuations and the negative impact of currency translation. Notably, the Assets under Custody & Administration (AuC/A) and Assets under Management (AuM) were $36.7 trillion (down 16% y-o-y) and $3.5 trillion (down 16%) respectively at quarter-end. Overall, the net income increased 5% y-o-y to $733 million.

The bank’s top line grew 1% y-o-y to $12.15 billion in FY 2022. While the NII increased 34% y-o-y, it was almost offset by a 4% decline in the total fee income. The fee revenues were down due to an 8% drop in the servicing fees and a 6% decrease in the management fees, which contribute more than 70% of the total fee income. Altogether, the adjusted net income increased by 3% y-o-y to $2.66 billion.

Moving forward, we expect the net interest income to continue its growth trajectory in the subsequent quarters. All in all, State Street’s revenues are estimated to remain around $12.64 billion in FY2023. Additionally, STT’s adjusted net income margin is likely to see a slight improvement in the year, leading to an adjusted net income of $2.85 billion and an annual GAAP EPS of $8.02. This coupled with a P/E multiple of 12x will lead to a valuation of $96.

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 Returns Mar 2023
MTD [1]
YTD [1]
Total [2]
 STT Return -2% 12% 12%
 S&P 500 Return 0% 4% 78%
 Trefis Multi-Strategy Portfolio 2% 9% 245%
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[1] Month-to-date and year-to-date as of 3/8/2023
[2] Cumulative total returns since the end of 2016

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