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Here's Why it is Best to Hold State Street (STT) Stock for Now
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State Street Corporation (STT - Free Report) remains well-positioned for growth, supported by its robust new business servicing wins, acquisitions, global reach, efforts to technologically upgrade operations and a strong balance sheet.
Moreover, analysts seem to be optimistic regarding its earnings growth potential. Thus, the Zacks Consensus Estimate for the company’s current-year earnings has been revised 1.1% upward over the past 30 days.
However, continuously increasing operating expenses the near-zero interest rate environment remain major concerns. Hence, it makes us apprehensive about the company’s growth prospects. Thus, State Street currently carries a Zacks Rank #3 (Hold).
Notably, its price performance does not seem very impressive. So far this year, shares of the company have gained 19.9%, underperforming 32.9% growth recorded by the industry it belongs to.
Looking at its fundamentals, total fee revenues witnessed a five-year (2016-2020) compound annual growth rate (CAGR) of 3.7%, mainly driven by a rise in client activity and significant market volatility. Fee revenues increased in first-quarter 2021 as well. The company remains well-positioned with respect to its fundamental business activities, given its global exposure and a broad array of innovative products and services.
Moreover, State Street has a strong balance sheet. Given the record of consistent earnings growth, the company is expected to continue to be able to meet debt obligations in the near term, even if the economic situation worsens.
Following the Federal Reserve’s second round of stress test and subsequent approval for resuming capital distributions, State Street recently authorized share buybacks worth up to $425 million for the second quarter of 2021. Given a solid liquidity position, the company is expected to continue to enhance shareholder value through efficient capital deployment activities.
However, near-zero interest rates and the Fed’s accommodative monetary policy stance are expected to continue to hurt net interest income (NII) and net interest margin (NIM). NII decreased, witnessing a four-year (ended 2020) CAGR of 1.5%. NIM fell to 0.97% in 2020 from 1.42% in 2019 and 1.47% in 2018. The downward trend for both continued in the first quarter of 2021.
Further, while driven by the company’s cost-saving efforts, total expenses declined in 2020, the same witnessed a CAGR of 1.8% over the four years ended 2020. Higher information systems and communications expenses as well as acquisition and restructuring costs were the primary reasons for the rise. Although the company has been successful in managing expenses through high-cost location workforce reduction and restructuring initiatives; overall costs are likely to remain elevated in the quarters ahead.
Some better-ranked stocks from the same space are mentioned below.
KeyCorp (KEY - Free Report) witnessed an upward earnings estimate revision of 16.8% for the current year over the past 60 days. Its share price has increased 40.5% so far this year. The company currently sports a Zacks Rank #1 (Strong Buy).
Over the past 60 days, Wells Fargo & Company (WFC - Free Report) witnessed an upward earnings estimate revision of 44% for 2021. Its shares have gained 54.2% so far this year. The company currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past 60 days, the Zacks Consensus Estimate for Fifth Third Bancorp’s (FITB - Free Report) current-year earnings has been revised 16.4% upward. The company’s shares have gained 53.6% year to date. The company currently carries a Zacks Rank #2 (Buy).
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Here's Why it is Best to Hold State Street (STT) Stock for Now
State Street Corporation (STT - Free Report) remains well-positioned for growth, supported by its robust new business servicing wins, acquisitions, global reach, efforts to technologically upgrade operations and a strong balance sheet.
Moreover, analysts seem to be optimistic regarding its earnings growth potential. Thus, the Zacks Consensus Estimate for the company’s current-year earnings has been revised 1.1% upward over the past 30 days.
However, continuously increasing operating expenses the near-zero interest rate environment remain major concerns. Hence, it makes us apprehensive about the company’s growth prospects. Thus, State Street currently carries a Zacks Rank #3 (Hold).
Notably, its price performance does not seem very impressive. So far this year, shares of the company have gained 19.9%, underperforming 32.9% growth recorded by the industry it belongs to.
Looking at its fundamentals, total fee revenues witnessed a five-year (2016-2020) compound annual growth rate (CAGR) of 3.7%, mainly driven by a rise in client activity and significant market volatility. Fee revenues increased in first-quarter 2021 as well. The company remains well-positioned with respect to its fundamental business activities, given its global exposure and a broad array of innovative products and services.
Moreover, State Street has a strong balance sheet. Given the record of consistent earnings growth, the company is expected to continue to be able to meet debt obligations in the near term, even if the economic situation worsens.
Following the Federal Reserve’s second round of stress test and subsequent approval for resuming capital distributions, State Street recently authorized share buybacks worth up to $425 million for the second quarter of 2021. Given a solid liquidity position, the company is expected to continue to enhance shareholder value through efficient capital deployment activities.
However, near-zero interest rates and the Fed’s accommodative monetary policy stance are expected to continue to hurt net interest income (NII) and net interest margin (NIM). NII decreased, witnessing a four-year (ended 2020) CAGR of 1.5%. NIM fell to 0.97% in 2020 from 1.42% in 2019 and 1.47% in 2018. The downward trend for both continued in the first quarter of 2021.
Further, while driven by the company’s cost-saving efforts, total expenses declined in 2020, the same witnessed a CAGR of 1.8% over the four years ended 2020. Higher information systems and communications expenses as well as acquisition and restructuring costs were the primary reasons for the rise. Although the company has been successful in managing expenses through high-cost location workforce reduction and restructuring initiatives; overall costs are likely to remain elevated in the quarters ahead.
Some better-ranked stocks from the same space are mentioned below.
KeyCorp (KEY - Free Report) witnessed an upward earnings estimate revision of 16.8% for the current year over the past 60 days. Its share price has increased 40.5% so far this year. The company currently sports a Zacks Rank #1 (Strong Buy).
Over the past 60 days, Wells Fargo & Company (WFC - Free Report) witnessed an upward earnings estimate revision of 44% for 2021. Its shares have gained 54.2% so far this year. The company currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past 60 days, the Zacks Consensus Estimate for Fifth Third Bancorp’s (FITB - Free Report) current-year earnings has been revised 16.4% upward. The company’s shares have gained 53.6% year to date. The company currently carries a Zacks Rank #2 (Buy).
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2021 today >>