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Revenue Growth Aid Northern Trust (NTRS) Despite Rising Costs

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Northern Trust Corporation (NTRS - Free Report) is well-positioned to maintain its organic growth in the days to come, backed by economic recovery. However, rising costs due to inflation and personnel might affect the bottom line.

Organic growth is Northern Trust’s key strength, as reflected by its revenue and loan growth story. NTRS’ revenues witnessed a compounded annual growth rate (CAGR) of 2.7% over the last four years (2018-2021), while loans and leases saw a CAGR of 13.5% in the last three years (ended 2021). 

The company seems increasingly confident of organic growth across both Corporate and Institutional Services (C&IS) and wealth management (WM) segments on the grounds of a likely strong pipeline in the upcoming quarters. We believe that the company is well-positioned to maintain its organic growth in the days to come, backed by economic recovery and rising rates.

The company's innovative technology-driven hedge fund administration capabilities brought to the marketplace via Northern Trust Hedge Fund Services provide an attractive proposition to the clients. It is also eyeing opportunities to expand its private capital space.

The implementation of the Target2-Securities strategy to provide better services to its clients is commendable. Northern Trust continues to diversify across geographical and client channels. This will aid the company to navigate macro-economic headwinds.

NTRS’ liquidity also seems solid. As of Dec 31, 2021, the company’s long-term debt of $1.14 billion declined over the last few quarters. Also, cash and due from banks of $1.24 billion remained volatile in the same period. It maintains investment grade senior debt ratings of A+/A2/A+ and a stable outlook from Fitch, Moody’s and S&P Global, respectively.

Given Northern Trust’s solid liquidity position, manageable debt level and solid credit profile, the company will be able to consistently meet debt obligations in the near term, even if the economic situation worsens.

Also, NTRS capital deployment activities seem impressive, backed by its liquidity. The company increased its quarterly dividend by 17% in July 2019. Also, it had a share repurchase program in place that was suspended in mid-March 2020, following the coronavirus crisis. Following the Federal Reserve’s approval to buy back shares in December 2020, the company undertook share repurchases in 2021. Northern Trust repurchased stock worth $1.8 million in the fourth quarter of 2021.

Despite the successful implementation of expense-reduction initiatives, costs escalated on ongoing investments in technology, driving compensation and equipment, and software expenses. Non-interest expenses witnessed a CAGR of 4.1% over the last four years (2018-2021). The company expects an increase in 2022 expenses due to inflation and the competitive labor market. We believe that an increasing trend in expenses will remain a hindrance to bottom-line growth.

As Northern Trust runs a global business, changing conditions of the global financial markets and general economic conditions could affect the company’s businesses. Weak economic conditions affected wealth creation, investment preferences, trading activities, and savings patterns, which, in turn, negatively impacted the demand for trust and investment products and services. Amid volatile equity markets, a reduction in transaction volumes might affect earnings in the coming quarters.

Shares of NTRS have gained 10.5% over the past year compared with the industry’s rise of 3.5%.


Zacks Investment Research
Image Source: Zacks Investment Research


The company carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks in the banking space are Bank of Hawaii (BOH - Free Report) , First Business Financial Services (FBIZ - Free Report) and Wells Fargo & Company (WFC - Free Report) . At present, BOH, FBIZ and WFC carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past six months, shares of BOH have gained 4.3%, whereas FBIZ and WFC stocks have rallied 16.5% and 11.6%, respectively.

Over the past 30 days, the Zacks Consensus Estimate for First Business and Wells Fargo’scurrent-year earnings has been revised marginally upward, while the same for Bank of Hawaii has stayed constant.