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Northern Trust (NTRS) Rallies 28% YTD: What's Driving It?

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During the last earnings season, financial stocks put up a decent show. One such major bank — Northern Trust Corporation NTRS — has rallied 28% year to date compared with the industry’s growth of 35.4%.

The price performance is backed by the gradually improving operating environment and rate scenario, which is beneficial for banks. Notably, after raising interest rates four times in 2018, the Federal Reserve reversed its stance and cut rates in July, September and October this year. However, the central bank kept rates unchanged at its latest meeting, with the Fed indicating a pause in rate cuts next year.

Positive developments related to the ongoing trade conflict between the United States and China, and strong probability of Brexit within Jan 31, 2020, are also likely to be catalysts.

Northern Trust is supported by sturdy wealth-management operations, with diversified products and services. The company’s focus on initiating businesses to tackle macroeconomic headwinds, and continued addition of institutional clients and assets is anticipated to yield positive results.

This apart, Northern Trust is part of the industry, which has a Zacks Industry Rank #57 (top 23%).



Additionally, estimates for this Zacks Rank #3 (Hold) stock have been witnessing an upswing of late. Over the last 60 days, the Zacks Consensus Estimate for its earnings moved up for 2019 and 2020.

Northern Trust’s debt/equity ratio is valued at 0.41 compared with the industry average of 0.95, indicating lower debt burden relative to the industry. It highlights the financial stability of the company, even in an unstable economic environment.

Northern Trust’s ROE of 15.66% as compared with the industry average of 12.25% highlights its commendable position over its peers. Notably, ROE exceeded the company’s target of 10-15%.

Fundamentally, Northern Trust’s revenues witnessed a compounded annual growth rate (CAGR) of 8.3% over the last five years (2014-2018), with the increasing trend continuing in the first nine months of 2019 as well. This impressive top-line growth was aided by the continued addition of businesses, and institutional clients and assets along with rising net interest income.

Northern Trust’s earnings jumped 16.57% annually over the last three to five years. The earnings growth momentum is anticipated to continue in the near term as well. The company projected EPS (earnings per share) growth (F1/F0) of 0.15% for 2019 and (F2/F1) 6.62% for 2020.

Though there was a sequential uptick in the third quarter of 2012, credit quality improved and continued to move toward a normalized level in 2013 and thereafter. Notably, provision for credit losses remained low in 2014, driven by an improvement in commercial and institutional, along with commercial and residential real estate loans. Further, provisions recorded a benefit in the last four years (ended 2018) and the first three quarters of 2019. We believe, with the continuation of such a favorable trend in the future, the company will be able to strengthen its earnings.

Stocks to Consider

TD Ameritrade Holding Corporation AMTD has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #2 Ranked (Buy) stock has rallied more than 2% year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

E*TRADE Financial Corporation ETFC has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have gained 3.9% year to date. At present, it carries a Zacks Rank of 2.

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