State Street’s stock (NYSE: STT) has shown a 10% year-to-date increase, lagging behind the S&P500’s 17% rise. The stock is currently trading at $85 per share, which is 2% below its fair value of $87 according to Trefis’ estimate. While State Street’s peer BNY Mellon’s stock (NYSE: BK) has gained 12% year-to-date, indicating some underperformance by State Street.
Despite the overall gains, State Street’s stock has been inconsistent with returns of 28% in 2021, -17% in 2022, and 0% in 2023. In comparison, the S&P 500 has shown returns of 27% in 2021, -19% in 2022, and 24% in 2023, suggesting that STT underperformed the S&P in 2023. The Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period, providing better returns with less risk than the benchmark index. The current uncertain macroeconomic environment with high oil prices and elevated interest rates raises the question of whether STT will continue to underperform the S&P over the next 12 months.
State Street reported total revenues of $3.19 billion in the second quarter of 2024, surpassing street estimates. The revenues were up 3% year-over-year, driven by a 2% increase in noninterest revenues and a 6% gain in net interest income. Assets under Custody & Administration and Assets under Management also saw growth at $44.31 trillion (up 12% y-o-y) and $4.4 trillion (up 16%) respectively. However, the adjusted net income decreased by 7% year-over-year to $711 million due to a higher effective tax rate.
The bank’s overall performance in FY 2023 saw a 2% decrease in total revenues to $11.94 billion, with a marginal decrease in fee revenue and lower total other income, partially offset by a 9% growth in net interest income. Total expenses as a percentage of revenues also saw an unfavorable increase over the same period, leading to a 32% decrease in adjusted net income to $1.8 billion.
Looking ahead, State Street is expected to maintain revenues around $12.55 billion in FY2024, with a potential drop in adjusted net income margin leading to an annual GAAP EPS of $5.71. Despite the challenges and fluctuations, State Street’s stock is trading at a valuation of just above 15x P/E multiple, indicating a potential fair value of $87. Investors are advised to consider these factors when making investment decisions in the current market environment.
