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New Business Aids Northern Trust (NTRS), Cost Woes Prevail

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Northern Trust Corporation (NTRS - Free Report) can be a solid bet now backed by its focus on initiating new business to tackle macroeconomic headwinds. The company’s implementation of expense-reduction initiatives and strategic additional efforts to improve productivity are anticipated to yield positive results.

Organic growth, improved credit quality and steady capital-deployment activities continue to drive Northern Trust’s growth. However, high debt level, margin pressure and decline in loan balances are concerns.

Rising revenues and initiation of new business have aided the bank to gain 26.6% in the past six months compared with the industry’s growth of 22.5%.



Further, the company’s earnings estimates moved upward, for the current and next year, respectively, over the past 30 days. As a result, the stock presently carries a Zacks Rank #3 (Hold).

Organic growth is a key strength at Northern Trust, as displayed by its revenue growth story. Revenues witnessed a compounded annual growth rate (CAGR) of 6.6% over the last five years (2015-2019) on rising non-interest income, with the trend continuing in the first three quarters of 2020 as well.

Against the backdrop of the current macroeconomic headwinds, Northern Trust, with its heightened aggression was focused on initiating new businesses over the last few years. Additionally, the bank’s innovative technology-driven hedge fund administration capabilities brought to the marketplace via Northern Trust Hedge Fund Services clearly provide an attractive proposition to clients. Moreover, the implementation of the Target2-Securities (T2S) strategy to provide better services to the bank’s clients is commendable.

Northern Trust’s credit quality improved and kept moving toward a normalized level in 2013 and thereafter. Notably, provision for credit losses was low in 2014, supported by improvements in commercial and institutional, as well as commercial and residential real estate loans. Though provisions escalated in the first three quarters this year on the coronavirus mayhem, it recorded a benefit in the last five years (ended 2019).

The company is exposed to operational risks. Despite the successful implementation of expense-reduction initiatives, costs escalated on the ongoing investments in technology, inflating compensation and equipment and software expenses. Remarkably, non-interest expenses witnessed a CAGR of 6% over the last five years (2015-2019), with the rising trend continuing in the first nine months of 2020.

Northern Trust’s loan balances have been witnessing a declining trend, which keeps its interest income strained. Though loans and leases escalated in the first nine months of the current year on rising commercial and institutional, private client, and commercial real estate loans, in the last four years (ended 2019), the bank witnessed a negative CAGR of 2.4%.

Stocks to Consider

Evercore Inc (EVR - Free Report) has witnessed upward earnings estimate revisions for 2020 for the past 30 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has gained 42.9% in three months’ time. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cowen Group, Inc.’s (COWN - Free Report) current-year earnings estimate moved north in 30 days’ time. Further, the company’s shares have appreciated 36.9% over the past three months. At present, it holds a Zacks Rank of 2 (Buy).

JMP Group LLC (JMP - Free Report) has witnessed upward earnings estimate revision for the ongoing year in the past 30 days. This Zacks #2 Ranked stock has gained 8.7% in the past three months.

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