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Elevated Expenses to Hurt State Street (STT): Time to Sell?

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Continuously increasing operating expenses are likely to hurt State Street Corporation’s (STT - Free Report) bottom-line growth in the near term. Moreover, it has been witnessing downward estimate revisions of late, indicating that analysts are not very optimistic about its earnings growth potential.

The Zacks Consensus Estimate for the company’s current-year earnings has been revised 3.7% downward over the past 60 days. Thus, the stock currently carries a Zacks Rank #4 (Sell).

In fact, State Street’s price performance does not seem impressive either. Its shares have lost 14.4% over the past six months against 3.4% growth recorded by the industry it belongs to.

Looking at the fundamentals, the company’s operating expenses witnessed a five-year (2014-2018) CAGR of 3.5% mainly due to higher compensation and employee benefit costs as well as restructuring costs. Notably, while it successfully achieved its expense saving target through State Street Beacon in 2018, the initiative did not significantly support financials.

Moreover, despite initiating another cost-saving program, the company’s overall expenses are likely to remain elevated in the near term because of rise in acquisition-related costs. Thus, higher costs are likely to hurt the bottom line to quite an extent.

Nevertheless, the company's new business wins and rising interest rates are likely to continue supporting profitability in the quarters ahead. Moreover, its efficient capital deployment activities reflect strong balance sheet position.

Some better-ranked stocks from the finance space are Cohen & Steers, Inc. (CNS - Free Report) , BlackRock, Inc. (BLK - Free Report) and Franklin Resources, Inc. (BEN - Free Report) .

Over the past 60 days, Cohen & Steers has witnessed an upward earnings estimate revision of 6.9% for 2019. Its shares have gained 45.3% so far this year. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past 60 days, the Zacks Consensus Estimate for BlackRock’s current-year earnings has been revised 4.4% upward. The company’s shares have gained 11.5% year to date. The stock currently carries a Zacks Rank #2 (Buy).

Franklin Resources also sports a Zacks Rank of 1 at present. It has witnessed an upward earnings estimate revision of 7.9% for fiscal 2019, over the past 60 days. Its share price has increased 11.3% so far this year.

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