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State Street Corporation (STT) Down 0.6% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for State Street Corporation (STT - Free Report) . Shares have lost about 0.6% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is State Street Corporation due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
State Street Q4 Earnings Beat on Rise in Fee Income
State Street’s fourth-quarter 2021 adjusted earnings of $2.00 per share outpaced the Zacks Consensus Estimate of $1.91. The bottom line was 18.3% higher than the prior-year level.
Results reflected new investment servicing wins, provision benefits and improvement in fee income. However, a rise in expenses, a fall in net interest revenues and lower interest rates were the undermining factors.
Results excluded non-recurring items. After considering those, net income available to common shareholders was $662 million or $1.78 per share, up from $498 million or $1.39 per share in the year-ago quarter.
In 2021, adjusted earnings of $7.44 per share beat the consensus estimate of $7.36 and were up 11% year over year. Net income available to common shareholders (GAAP basis) was $2.57 billion or $7.49 per share, up from $2.26 billion or $6.32 per share in 2020.
Revenues Improve, Expenses Rise
Total quarterly revenues were $3.05 billion, increasing 4.7% year over year. Also, the top line beat the Zacks Consensus Estimate of $3.01 billion.
In 2021, total revenues grew 2.8% from the prior year to $12.02 billion. The top line surpassed the Zacks Consensus Estimate of $11.97 billion.
Quarterly net interest revenues were $484 million, down 3% year over year. The fall was largely due to lower investment portfolio yields, partially offset by higher loan balance and a rise in deposits and investment portfolio balances.
Net interest margin contracted 11 basis points to 0.73%.
Total fee revenues grew 3.9% year over year to $2.51 billion. The rise was mainly driven by improvement in all fee components, except foreign exchange trading services and software and processing fees.
Non-interest expenses were $2.33 billion, increasing 2.4%. Excluding notable items, adjusted expenses were up 1.4% to $2.16 billion.
Provision for credit losses was a benefit of $7 million in the reported quarter against no provisions in the prior-year quarter.
Asset Balances Improve
As of Dec 31, 2021, total assets under custody (AUC) and administration were $43.7 trillion, up 12.6% year over year. The rise was mainly due to higher market levels, net new business growth and client flows.
Assets under management were $4.1 trillion, up 19.4% year over year. The growth was driven largely by higher market levels and net inflows.
Capital and Profitability Ratios Strong
Common equity Tier 1 (CET1) ratio was 14.3% as of Dec 31, 2021, compared with 13.1% in the corresponding period of 2020.
Return on common equity was 10.3% compared with 8.4% in the year-ago quarter.
2022 Outlook (excludes impending acquisition of BBH Investor Services)
The company’s outlook is based on certain assumptions, including three interest rate hikes in the United States, global equity markets to be up 5%, and there is an expectation of continued normalization of FX market volatility and strengthening of the U.S. dollar.
NII is expected to rise 10-12%.
Fee revenues are expected to be up 3-4% (including currency translation headwind of almost 1%), with servicing fees expected to be up 2-3%.
Excluding notable items, expenses are expected to be up 1.5-2%. This includes a currency translation benefit of approximately 1%.
The company expects positive total and fee operating leverage.
Effective tax rate is expected to be 17-19%.
First-Quarter 2022 Outlook
NII is expected to be up 3% to 4% year over year and flat sequentially.
Fee revenues are projected to grow 2-3% year over year given equity market expectations and continued business momentum, with servicing fees expected to be up 1-2% and management fees to be up 8-9%.
Expenses (excluding notable items) will likely be up 1.5-2% on a year over year and include a seasonal compensation expense.
Management expects risk-weighted assets to increase to more normalized business levels and include the effects of expected regulatory changes.
Given the current improvement in short-end rates and anticipated rate hike in March, the company expects money market fee waivers on management fees to be nearly $15 million in the first quarter.
The company expects CET1 and Tier 1 leverage ratios to be at the lower end of its target ranges for the first half of 2022, inclusive of the implementation of SACCR and the expected closing of the BBH Investor Services acquisition. The company targets for CET1 and Tier 1 leverage ratios are 10-11% and 5.25-5.75%, respectively.
Medium-Term Targets (to be achieved by 2023-end)
Including the impact of the CRD buyout, the company expects a revenue increase of 4-5%. Pre-tax margin is expected to be 31%.
Management expects earnings per share growth of 10-15% and ROE of 12-15%. Total payout ratio is expected to be greater than or equal to 80%.
Further, given the current higher equity market step-off and new interest rate forward, management now expects almost 25% year-over-year earnings before interest and tax (EBIT) growth for the acquired BBH business for each quarter in the first year post-closing, instead of 15% EBIT growth as targeted originally.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -6.67% due to these changes.
VGM Scores
At this time, State Street Corporation has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, State Street Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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State Street Corporation (STT) Down 0.6% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for State Street Corporation (STT - Free Report) . Shares have lost about 0.6% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is State Street Corporation due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
State Street Q4 Earnings Beat on Rise in Fee Income
State Street’s fourth-quarter 2021 adjusted earnings of $2.00 per share outpaced the Zacks Consensus Estimate of $1.91. The bottom line was 18.3% higher than the prior-year level.
Results reflected new investment servicing wins, provision benefits and improvement in fee income. However, a rise in expenses, a fall in net interest revenues and lower interest rates were the undermining factors.
Results excluded non-recurring items. After considering those, net income available to common shareholders was $662 million or $1.78 per share, up from $498 million or $1.39 per share in the year-ago quarter.
In 2021, adjusted earnings of $7.44 per share beat the consensus estimate of $7.36 and were up 11% year over year. Net income available to common shareholders (GAAP basis) was $2.57 billion or $7.49 per share, up from $2.26 billion or $6.32 per share in 2020.
Revenues Improve, Expenses Rise
Total quarterly revenues were $3.05 billion, increasing 4.7% year over year. Also, the top line beat the Zacks Consensus Estimate of $3.01 billion.
In 2021, total revenues grew 2.8% from the prior year to $12.02 billion. The top line surpassed the Zacks Consensus Estimate of $11.97 billion.
Quarterly net interest revenues were $484 million, down 3% year over year. The fall was largely due to lower investment portfolio yields, partially offset by higher loan balance and a rise in deposits and investment portfolio balances.
Net interest margin contracted 11 basis points to 0.73%.
Total fee revenues grew 3.9% year over year to $2.51 billion. The rise was mainly driven by improvement in all fee components, except foreign exchange trading services and software and processing fees.
Non-interest expenses were $2.33 billion, increasing 2.4%. Excluding notable items, adjusted expenses were up 1.4% to $2.16 billion.
Provision for credit losses was a benefit of $7 million in the reported quarter against no provisions in the prior-year quarter.
Asset Balances Improve
As of Dec 31, 2021, total assets under custody (AUC) and administration were $43.7 trillion, up 12.6% year over year. The rise was mainly due to higher market levels, net new business growth and client flows.
Assets under management were $4.1 trillion, up 19.4% year over year. The growth was driven largely by higher market levels and net inflows.
Capital and Profitability Ratios Strong
Common equity Tier 1 (CET1) ratio was 14.3% as of Dec 31, 2021, compared with 13.1% in the corresponding period of 2020.
Return on common equity was 10.3% compared with 8.4% in the year-ago quarter.
2022 Outlook (excludes impending acquisition of BBH Investor Services)
The company’s outlook is based on certain assumptions, including three interest rate hikes in the United States, global equity markets to be up 5%, and there is an expectation of continued normalization of FX market volatility and strengthening of the U.S. dollar.
NII is expected to rise 10-12%.
Fee revenues are expected to be up 3-4% (including currency translation headwind of almost 1%), with servicing fees expected to be up 2-3%.
Excluding notable items, expenses are expected to be up 1.5-2%. This includes a currency translation benefit of approximately 1%.
The company expects positive total and fee operating leverage.
Effective tax rate is expected to be 17-19%.
First-Quarter 2022 Outlook
NII is expected to be up 3% to 4% year over year and flat sequentially.
Fee revenues are projected to grow 2-3% year over year given equity market expectations and continued business momentum, with servicing fees expected to be up 1-2% and management fees to be up 8-9%.
Expenses (excluding notable items) will likely be up 1.5-2% on a year over year and include a seasonal compensation expense.
Management expects risk-weighted assets to increase to more normalized business levels and include the effects of expected regulatory changes.
Given the current improvement in short-end rates and anticipated rate hike in March, the company expects money market fee waivers on management fees to be nearly $15 million in the first quarter.
The company expects CET1 and Tier 1 leverage ratios to be at the lower end of its target ranges for the first half of 2022, inclusive of the implementation of SACCR and the expected closing of the BBH Investor Services acquisition. The company targets for CET1 and Tier 1 leverage ratios are 10-11% and 5.25-5.75%, respectively.
Medium-Term Targets (to be achieved by 2023-end)
Including the impact of the CRD buyout, the company expects a revenue increase of 4-5%. Pre-tax margin is expected to be 31%.
Management expects earnings per share growth of 10-15% and ROE of 12-15%. Total payout ratio is expected to be greater than or equal to 80%.
Further, given the current higher equity market step-off and new interest rate forward, management now expects almost 25% year-over-year earnings before interest and tax (EBIT) growth for the acquired BBH business for each quarter in the first year post-closing, instead of 15% EBIT growth as targeted originally.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -6.67% due to these changes.
VGM Scores
At this time, State Street Corporation has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, State Street Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.