Shares of State Street Corporation (STT - Free Report) have rallied 26.7% in 2019. Strong capital position, new business wins, synergies from acquisitions and the company’s global footprint seem to be the primary reasons for this impressive stock performance.
However, during the same time frame, the industry to which the stock belongs grew 35.4%, while the S&P 500 rose 28%.
Nevertheless, State Street’s stellar performance marks a significant rebound, following a disappointing 2018. The company’s shares lost more than 35% in 2018, mainly owing to the tough operating backdrop in the fourth quarter.
Moreover, analysts have been bullish on the Zacks Rank #2 (Buy) stock of late. Over the past 60 days, the Zacks Consensus Estimate for the company’s current-year earnings has moved 1% upward.
While its past performance doesn’t guarantee a similar trend in the future, we believe that the following factors are enough to support a steady price rally for State Street.
Earnings Growth: The company witnessed historical (last three-five years) earnings per share (EPS) growth of 8.3%. Moreover, its projected EPS growth rate of 11.8% for 2020 ensures the continuation of the upward trend in earnings.
Further, the company’s long-term (three-five years) estimated EPS growth rate of 8.3% promises rewards for investors.
Revenue Strength: State Street has been witnessing continued improvement in revenues. Over the past five years (2014-2018), total revenues have witnessed a compound annual growth rate (CAGR) of 3.9%. Continuous investment in new products, business wins and inorganic growth strategy will likely strengthen the company’s revenue generation in the quarters ahead.
Impressive Capital Deployment: State Street has a commendable capital-deployment plan. The company’s 2019 capital plan (approved by the Federal Reserve) included a 10.6% dividend hike and a share-repurchase authorization of $2 billion. Given its solid liquidity position and earnings strength, it is expected to be able to sustain improved capital deployments and continue enhancing shareholders’ value.
Strong Leverage: State Street’s debt/equity ratio is 0.53 compared with the industry average of 0.95, indicating a relatively lower debt burden. This reflects the company’s financial stability amid adverse economic conditions.
Favorable Valuation: State Street currently looks undervalued with respect to its price/cash flow and price/sales ratios. The company has a P/CF ratio of 7.37, which is below the industry average of 10.88. Also, its P/S ratio of 2.22 is lower than the industry average of 2.69.
Also, the stock has a Value Score of B. Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
A few other top-ranked stocks from the finance space are mentioned below. All these stocks currently carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for earnings of T. Rowe Price (TROW - Free Report) has moved marginally upward for 2019 over the past 60 days. Shares of the company have gained 9.3% over the past three months.
The consensus estimate for earnings of Waddell & Reed (WDR - Free Report) has been revised 1.2% upward for the current year over the past 60 days. Its share price has increased 1% over the past three months.
The consensus estimate for Federated Investors, Inc (FII - Free Report) has been revised nearly 1% upward for 2019 over the past 60 days. The company’s share price has rallied 3.7% over the past three months.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q3 2019, while the S&P 500 gained +39.6%, five of our strategies returned +51.8%, +57.5%, +96.9%, +119.0%, and even +158.9%.
This outperformance has not just been a recent phenomenon. From 2000 – Q3 2019, while the S&P averaged +5.6% per year, our top strategies averaged up to +54.1% per year.
See their latest picks free >>