What To Expect From State Street Stock In Q2?

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State Street (NYSE: STT) is scheduled to report its fiscal Q2 2023 results on Friday, July 14, 2023. We expect State Street to edge past the consensus estimates. The custody banking giant missed the street expectations in the last quarter. It posted total revenues of 3.1 billion, a slight increase on a year-on-year basis. It was due to a 9% drop in the total fee income, offsetting the 50% jump in the net interest revenues. While the fee income mainly suffered due to lower market valuations and the negative impact of foreign exchange movements, the net interest income (NII) benefited from improvement in the net interest margin. We expect the same trend to continue in Q2.  

Our forecast indicates that State Street’s valuation is $85 per share, which is 14% above the current market price of just below $75. Our interactive dashboard analysis on State Street’s Earnings Preview has more details. 

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(1) Revenues marginally beat the consensus estimates

State Street’s revenues marginally increased to $12.15 billion in FY 2022. It was due to a 34% y-o-y jump in NII, almost offset by a 4% drop in the total fee income.

  • The bank derives more than 80% of its total revenues from fee income, which heavily depends on Assets under Custody & Administration (AuC/A) and Assets under Management (AuM). Notably, AuM and AuC/A both decreased 10% in Q1. The impact was evident in the total fee income, which decreased 9% y-o-y. We expect the Q2 results to be on similar lines.
  • The NII increased by 50% in Q1 due to higher interest rates. We expect the same trend to continue in Q2.
  • Overall, we estimate State Street’s revenues to touch $12.41 billion for FY2023.

Trefis estimates State Street’s fiscal Q2 2023 revenues to be around $3.16 billion, just above the $3.14 billion consensus estimate. 

(2) EPS is likely to beat the consensus estimates

State Street Q2 2023 adjusted earnings per share (EPS) is expected to be $2.14 per Trefis analysis, almost 1% above the consensus estimate of $2.11. The bank’s adjusted net income grew 3% y-o-y to $2.66 billion in FY2022, primarily because of a slight drop in expenses as a % of revenues. We expect the same trend to drive the second-quarter results. Overall, State Street is likely to report an annual EPS of $7.65 for the full-year 2023.

(3) Stock price estimate is 14% higher than the current market price

We arrive at State Street’s valuation, using an EPS estimate of around $7.65 and a P/E multiple of close to 11x in fiscal 2023. This translates into a price of $85, which is 14% above the current market price. 

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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 Returns Jul 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 STT Return 2% -4% -4%
 S&P 500 Return -1% 15% 97%
 Trefis Multi-Strategy Portfolio 2% 21% 288%

[1] Month-to-date and year-to-date as of 7/11/2023
[2] Cumulative total returns since the end of 2016

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