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State Street Corporation (STT) Down 11% 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 11% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
State Street Misses on Q1 Earnings as Expenses Rise
State Street’s first-quarter 2023 adjusted earnings of $1.52 per share missed the Zacks Consensus Estimate of $1.62. The bottom line was 4.4% lower than the prior-year level. Our estimate for adjusted earnings was $1.53 per share.
Results have been primarily hurt by a rise in expenses, higher provisions and lower fee revenues. Lower asset balances also affected the results. However, an increase in net interest revenues (NIR) and growth in the net interest margin (NIM) supported the results to some extent.
After considering non-recurring items, net income available to common shareholders was $525 million or $1.52 per share, down from $583 million or $1.57 per share in the year-ago quarter. We projected a net income available to common shareholders (GAAP basis) of $538.9 million.
Revenues Improve Marginally, Expenses Rise
Total revenues were $3.10 billion, increasing marginally year over year. However, the top line missed the Zacks Consensus Estimate of $3.12 billion. Our estimate for the metric was $3.10 billion.
NIR was $766 million, jumping 50.5% year over year. The rise was driven by higher rates and balance sheet positioning, partially offset by lower average deposits. The net interest margin (NIM) rose 51 basis points year over year to 1.31%. Our estimates for NIR and NIM were $779.5 million and 1.29%, respectively.
Total fee revenues decreased 9.2% to $2.34 billion. The fall was due to a decline in almost all fee income components, except for securities finance revenues and other fee revenues. We projected total fee revenues of $2.44 billion.
Non-interest expenses were $2.37 billion, up 1.8% year over year. The rise was due to an increase in compensation and employee benefits costs, and other expenses. Our estimate for the metric was $2.39 billion.
The provision for credit losses was $44 million in the reported quarter against NIL provisions in the prior-year quarter. Our estimate for the metric was $5.1 million.
The common equity Tier 1 ratio was 12.1% as of Mar 31, 2023, compared with 11.9% in the corresponding period of 2022. The return on common equity was 9.3% compared with 9.5% in the year-ago quarter.
Asset Balances Decline
As of Mar 31, 2023, total assets under custody and administration were $37.6 trillion, down 9.8% year over year. The fall was due to lower equity and fixed-income market levels.
Assets under management were $3.6 trillion, down 10% year over year, reflecting lower equity and fixed-income market levels, and net outflows.
Share Repurchase Update
In the reported quarter, State Street repurchased shares worth $1.25 billion.
Second-Quarter 2023 Outlook
NIR is expected to decline 5-10% sequentially. This is likely to be due to the non-interest-bearing deposit rotation and interest-bearing deposit betas as monetary tightening and interest rate hikes continue.
Fee revenues are expected to be up 4-5% on a sequential basis, with servicing fees rising 1-2% and management fees to be flat to up 1% on a quarter-over-quarter basis. Further, software and processing fees are projected to increase substantially based on the number of on-premise renewals and SaaS conversions during the quarter.
Management expects adjusted expenses to be flat on a sequential basis excluding $181 million of seasonal compensation cost incurred in the first quarter.
Effective tax rate is expected to be 21%.
2023 Outlook
NIR is anticipated to increase in the range of 5-15%.
The company expects to operate somewhat below its standard target ranges for the CET1 and Tier 1 leverage ratios. It initially expected the CET1 and Tier 1 leverage ratios to be 10-11% and 5.25-5.75%, respectively.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -5.55% due to these changes.
VGM Scores
At this time, State Street Corporation has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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. It's no surprise State Street Corporation has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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State Street Corporation (STT) Down 11% 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 11% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
State Street Misses on Q1 Earnings as Expenses Rise
State Street’s first-quarter 2023 adjusted earnings of $1.52 per share missed the Zacks Consensus Estimate of $1.62. The bottom line was 4.4% lower than the prior-year level. Our estimate for adjusted earnings was $1.53 per share.
Results have been primarily hurt by a rise in expenses, higher provisions and lower fee revenues. Lower asset balances also affected the results. However, an increase in net interest revenues (NIR) and growth in the net interest margin (NIM) supported the results to some extent.
After considering non-recurring items, net income available to common shareholders was $525 million or $1.52 per share, down from $583 million or $1.57 per share in the year-ago quarter. We projected a net income available to common shareholders (GAAP basis) of $538.9 million.
Revenues Improve Marginally, Expenses Rise
Total revenues were $3.10 billion, increasing marginally year over year. However, the top line missed the Zacks Consensus Estimate of $3.12 billion. Our estimate for the metric was $3.10 billion.
NIR was $766 million, jumping 50.5% year over year. The rise was driven by higher rates and balance sheet positioning, partially offset by lower average deposits. The net interest margin (NIM) rose 51 basis points year over year to 1.31%. Our estimates for NIR and NIM were $779.5 million and 1.29%, respectively.
Total fee revenues decreased 9.2% to $2.34 billion. The fall was due to a decline in almost all fee income components, except for securities finance revenues and other fee revenues. We projected total fee revenues of $2.44 billion.
Non-interest expenses were $2.37 billion, up 1.8% year over year. The rise was due to an increase in compensation and employee benefits costs, and other expenses. Our estimate for the metric was $2.39 billion.
The provision for credit losses was $44 million in the reported quarter against NIL provisions in the prior-year quarter. Our estimate for the metric was $5.1 million.
The common equity Tier 1 ratio was 12.1% as of Mar 31, 2023, compared with 11.9% in the corresponding period of 2022. The return on common equity was 9.3% compared with 9.5% in the year-ago quarter.
Asset Balances Decline
As of Mar 31, 2023, total assets under custody and administration were $37.6 trillion, down 9.8% year over year. The fall was due to lower equity and fixed-income market levels.
Assets under management were $3.6 trillion, down 10% year over year, reflecting lower equity and fixed-income market levels, and net outflows.
Share Repurchase Update
In the reported quarter, State Street repurchased shares worth $1.25 billion.
Second-Quarter 2023 Outlook
NIR is expected to decline 5-10% sequentially. This is likely to be due to the non-interest-bearing deposit rotation and interest-bearing deposit betas as monetary tightening and interest rate hikes continue.
Fee revenues are expected to be up 4-5% on a sequential basis, with servicing fees rising 1-2% and management fees to be flat to up 1% on a quarter-over-quarter basis. Further, software and processing fees are projected to increase substantially based on the number of on-premise renewals and SaaS conversions during the quarter.
Management expects adjusted expenses to be flat on a sequential basis excluding $181 million of seasonal compensation cost incurred in the first quarter.
Effective tax rate is expected to be 21%.
2023 Outlook
NIR is anticipated to increase in the range of 5-15%.
The company expects to operate somewhat below its standard target ranges for the CET1 and Tier 1 leverage ratios. It initially expected the CET1 and Tier 1 leverage ratios to be 10-11% and 5.25-5.75%, respectively.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -5.55% due to these changes.
VGM Scores
At this time, State Street Corporation has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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. It's no surprise State Street Corporation has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.