Down 6% Since The Beginning Of 2023, What Should You Expect From State Street Stock?

+4.64%
Upside
72.15
Market
75.50
Trefis
STT: State Street logo
STT
State Street

State Street’s stock (NYSE: STT) has lost 6% YTD, as compared to the 19% rise in the S&P500 over the same period. Further, the stock is currently trading at $73 per share, which is 3% below its fair value of $76 – Trefis’ estimate for State Street’s valuation

Amid the current financial backdrop, STT stock has seen little change, moving slightly from levels of $75 in early January 2021 to around $75 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. Overall, the performance of STT stock with respect to the index has been lackluster. Returns for the stock were 28% in 2021, -17% in 2022, and -6% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 20% in 2023 (YTD) – 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 V, JPM, 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 posted mixed results in the third quarter of 2023, with earnings topping the consensus but revenues missing the mark. It reported total revenues of $2.7 billion – down 9% y-o-y. It was primarily due to a 5% drop in the net interest income coupled with a $294 million loss on the sale of investment securities, partially offset by a 3% rise in the total fee revenue. The net interest income mainly suffered due to a decrease in average total interest-earning assets. On the flip side, the fee income benefited from an increase in servicing fees and management fees, driven by higher average equity market levels. Notably, Assets under Custody and administration (AuC/A) and Assets under Management (AuM) were $40.02 trillion (up 12% y-o-y) and $3.7 trillion (up 13%) respectively at quarter-end. On the cost front, total expenses as a % of revenues witnessed an unfavorable increase, leading to an adjusted net income of $398 million – down 41% y-o-y.

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The bank’s top line marginally decreased to $8.9 billion in the first nine months of FY 2023. It was mainly due to a 2% decline in the total fee revenue, almost offset by a 19% growth in the net interest income. Notably, total fee income contributes close to 80% of the top line. On the expense side, total expenses rose by 3% y-o-y over the same period. Altogether, the adjusted net income declined by 16% y-o-y to $1.65 billion.

Moving forward, we expect the Q4 results to follow the same trend as the last quarter. Overall, State Street’s revenues are estimated to remain around $12 billion in FY2023. Additionally, STT’s adjusted net income margin is likely to see some drop as compared to the previous year, leading to an annual GAAP EPS of $7.41. This coupled with a P/E multiple of just above 10x will lead to a valuation of $76.

 Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 STT Return 0% -6% -6%
 S&P 500 Return 0% 19% 105%
 Trefis Reinforced Value Portfolio 1% 29% 565%

[1] Month-to-date and year-to-date as of 12/8/2023
[2] Cumulative total returns since the end of 2016

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