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May 28, 2024 |
Northern Trust Corporation (NASDAQ: NTRS)$83.30 USD ( As of 05/24/24 ) |
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Data Overview
| Target Price | $95.00 |
|---|---|
| 52 Week High-Low | $88.92 - $63.06 |
| 20 Day Average Volume | 881,588 |
| Beta | 1.13 |
| Market Cap | 17.04 B |
| Dividend / Div Yld | $3.00 / 3.60% |
| Industry | Banks - Major Regional |
| Industry Rank | 46 / 250 (Top 18%) |
| Current Ratio | 0.71 |
| Debt/Capital | 36.02% |
| Net Margin | 7.59% |
| Price/Book (P/B) | 1.52 |
| Price/Cash Flow (P/CF) | 8.68 |
| Earnings Yield | 8.19% |
| Debt/Equity | 0.61 |
| Value Score |  |
|---|---|
| P/E (F1) | 12.22 |
| P/E (F1) Rel to Industry | 2.67 |
| PEG Ratio | 1.19 |
| P/S (F1) | 1.31 |
| P/S (TTM) | 1.31 |
| P/CFO | 8.68 |
| P/CFO Rel to Industry | 0.32 |
| EV/EBITDA Annual | -4.77 |
| Growth Score |  |
|---|---|
| Proj. EPS Growth (F1/F0) | 9.08% |
| Hist. EPS Growth (Q0/Q-1) | 0.96% |
| Qtr CFO Growth | -445.62 |
| 2 Yr CFO Growth | -11.77 |
| Return on Equity (ROE) | 12.57% |
| (NI - CFO) / Total Assets | NA |
| Asset Turnover | 0.09 |
| Momentum Score | |
|---|---|
| 1 week Volume change | -16.57% |
| 1 week Price Cng Rel to Industry | -1.36% |
| (F1) EPS Est 1 week change | 0.00% |
| (F1) EPS Est 4 week change | -0.59% |
| (F1) EPS Est 12 week change | 8.40% |
| (Q1) EPS Est 1 week change | 0.00% |
Summary
Shares of Northern Trust have underperformed the industry in the past six months. Yet, the company has an impressive earnings surprise history. It surpassed the Zacks Consensus Estimate for earnings in three of the trailing four quarters. Northern Trust continues to benefit from its strong wealth management operations, along with diversified products. Also, the Fed’s interest rate hikes are expected to further ease margin pressure and support its top line. However, despite undertaking cost-saving measures, mounting expenses continue to hurt the company's financials. Moreover, elevated non-performing assets remain concerns.
Elements of the Zacks Rank
Agreement Estimate Revisions (60 days)
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100% Q1 (Current Qtr)Revisions: 5 Up: 5 Down: 0 |
80% Q2 (Next Qtr)Revisions: 5 Up: 4 Down: 1 |
100% F1 (Current Year)Revisions: 6 Up: 6 Down: 0 |
100% F2 (Next Year)Revisions: 6 Up: 6 Down: 0 |
Magnitude Consensus Estimate Trend (60 days)
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Upside Zacks Consensus Estimate vs. Most Accurate Estimate
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Surprise Reported Earnings History
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Average 4 Qtr Surprise |
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The data on the front page and all the charts in the report represent market data as of 05/24/24, while the report's text is as of 12/28/2018
Overview
Northern Trust Corporation is the holding company for its main subsidiary, Northern Trust Company, as well as a number of other banking and non-banking financial service subsidiaries. The company’s main sources of revenue include two of its primary business units: Corporate and Institutional Services (C&IS) and Wealth Management (WM). Asset management and related services to WM and C&IS clients are provided primarily by a third business unit, Asset Management.
- The C&IS unit (accounted for 57% of 2017 total fees) provides asset servicing, asset management and related services to clients including corporate and public retirement funds, foundations and government funds; commercial banking services to large and mid-sized corporations and financial institutions; and foreign exchange services. As of Sep 30, 2018, total C&IS assets under custody (AUC) were $7.5 trillion and assets under management (AUM) were $876 billion.
- The WM division (43%) delivers customized investment management and trust services to high net worth individuals and families across 18 states of North America and Washington, D.C., as well as offices in London and Guernsey. As of Sep 30, 2018, total AUC was $665.8 billion and total AUM was $295.5 billion.
- Asset Management provides a broad range of asset management and related services and other products to clients around the world, including clients of C&IS and WM.
Treasury and Other includes income and expense related to the wholesale funding activities and the investment portfolios of the Corporation and the Bank and nonrecurring items not allocated to C&IS and WM.
In June 2018, Northern Trust completed the acquisition of Citadel’s Omnium Technology Platform. In October 2017, Northern Trust acquired UBS Asset Management's fund administration servicing units in Luxembourg and Switzerland.
As of Sep 30, 2018, the company had total assets worth $132.4 billion, AUM of $1.17 trillion and AUC of $8.2 trillion.
Reasons To Buy:
Northern Trust remains focused on initiating new business to tackle macroeconomic headwinds. Rising revenue bolsters organic growth, while lower provisions boost bottom-line.
Against the backdrop of macroeconomic headwinds, Northern Trust, with heightened aggression was focused on initiating new business over the last couple of years. Additionally, Northern Trust’s innovative technology-driven hedge fund administration capabilities brought to the marketplace via Northern Trust Hedge Fund Services clearly provides an attractive proposition to the clients. Further, implementation of the Target2-Securities (T2S) strategy to provide better services to its clients is commendable. Notably, in order to expand its presence in Luxembourg and provide fund administration service in Switzerland, in October 2017, Northern Trust completed the acquisition of UBS Asset Management's fund administration servicing units land. In addition, this June, the acquisition of Citadel’s Omnium Technology Platform was closed with an aim to provide innovative solutions for alternative fund managers, asset managers, institutional investors and family offices, globally.
Northern Trust displayed its capital strength as it successfully cleared the 2018 Dodd-Frank Act Stress Test (DFAST). Pursuant to this, the company raised its quarterly common stock dividend to 55 cents per share, up 31%, in July 2018. Furthermore, the company’s board of directors has approved a new common stock repurchase authorization of up to 25 million shares. Notably, the capital plan also includes repurchase up to $1 billion of common stock between July 2018 and June 2019. Notably, the company’s debt/equity ratio compares favorably with that of the broader industry, highlighting the fact that such dividend hikes are sustainable in the future. We believe steady capital deployment activities will continue to inspire investors’ confidence in the stock.
Organic growth remains a key strength at Northern Trust, as reflected by its revenue growth story. Revenues grew at a CAGR of 7.1% over the last five years (2013–2017) on rising net interest as well as non-interest income, with the trend continuing in the first nine months of 2018 as well. We believe that the company is well positioned to maintain this trend, moving ahead.
After years of facing margin pressure due to low rates, Northern Trust is finally looking forward to gradual improvement in the rate environment. In 2016, 2017, and the first nine months of 2018, the net interest margin improved on a year-over-year basis, after witnessing a declining trend over the past several years. Also, management is optimistic about favorable impact of the rate hike on margins in the quarters ahead, with a continued rise in loan demand and higher yields on earning assets. Notably, following the recent Fed interest rate hike, the company raised its prime lending rate to 5.50% from 5.25%.
For supporting the new investment activities, management is taking steps to tackle expense growth and reinstate operating leverage over the upcoming quarters. Northern Trust continues to pursue meaningful additional efforts to improve productivity and deliver financial benefits beyond original targets. In 2014, the company established internal productivity targets on both the revenue and expense side. The ultimate measure of the success of these efforts was the company’s ability to consistently achieve its financial target of a return on equity between 10% and 15%. Notably, the company recorded ROE of 15.9% as of Sep 30, 2018. The company is particularly striving to improve the ratio of expenses to trust and investment fees as it is a key element in driving ROE.
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 2015, 2016, 2017 and the first nine months of 2018. We believe, with the continuation of such a favorable trend in the future, the company will be able to strengthen its earnings.
Reasons To Sell:
Despite successful implementation of expense reduction initiatives, costs escalated on ongoing investments in technology driving compensation and equipment and software expenses. Notably, non-interest expenses grew at a CAGR of 5.9% over the last five years (2013–2017), with the trend continuing in the first nine months of 2018. We believe that increasing trend in expenses will remain a hindrance for bottom-line growth.
Maintaining a low level of nonperforming assets is important for the continuous success of a financial institution. In addition to the negative impact on both net interest income and credit losses, nonperforming assets also increase operating costs due to the expense associated with collection efforts. Though non-performing assets of $124.9 million as of Sep 30, 2018, declined from the previous year, the same remain elevated from levels preceding the economic downturn in 2008 and its impact on residential property valuations and general economic conditions.
Northern Trust runs a global business. Changing conditions of the global financial markets and general economic conditions could adversely affect the company’s businesses. Weak economic conditions had affected wealth creation, investment preferences, trading activities, and savings patterns, which in turn impacted demand for trust and investment products and services. Though equity markets started to improve since third quarter of 2012, in the absence of a sustained recovery, reduction in transaction volumes might negatively affect earnings in the coming quarters.
Shares of Northern Trust have lost around nearly 20% in the past six months compared with the 15.4% decline recorded by the industry. With this unfavorable trend, the company’s 2018 earnings estimates have been revised around slightly downward, over the last 30 days. Further, the stock seems overvalued when compared with the broader industry. Its current price-to-book and price-earnings (F1) ratios are above the respective industry averages. Therefore, given the above concerns and lack of positive estimate revisions, the stock has limited upside potential.
Last Earnings Report
Quarter Ending 03/2024
| Report Date | Apr 16, 2024 |
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| Sales Surprise | -7.91% |
| EPS Surprise | 15.65% |
| Quarterly EPS | 1.70 |
| Annual EPS (TTM) | 6.44 |
Northern Trust Q3 Earnings Miss Estimates on High Costs
Reflecting high costs, Northern Trust’s third-quarter 2018 earnings per share of $1.58 missed the Zacks Consensus Estimate of $1.60. Earnings compared favorably with $1.20 recorded in the year-ago quarter.
Escalating operating expenses acted as a headwind in the reported quarter. However, higher revenues and strong capital position were positives. Additionally, the third quarter witnessed a rise in assets under custody, as well as assets under management. Moreover, mostly credit metrics marked a significant improvement.
Net income came in at $374.5 million, up 25.5% year over year.
Margins & Revenues Improve, Costs Escalate
Total revenues of $1.48 billion improved 9% year over year. However, results lagged the Zacks Consensus Estimate of $1.51 billion.
On a fully-taxable equivalent basis, net interest income of $418.5 million was up 14% year over year. This was driven by higher net interest margin.
Net interest margin (NIM) was 1.47%, up 18 basis points from the prior-year quarter. The increase chiefly reflected higher short-term interest rates and reduced premium amortization. The positives were partially offset by an unfavorable balance-sheet mix shift.
Non-interest income advanced 8% from the year-ago quarter to $1.07 billion. Rise in trust, investment and other servicing fees, along with foreign exchange trading income, security commissions and trading income, were the primary reasons behind this upswing. These were partially offset by lower treasury management fees and other operating income.
Non-interest expenses flared up 7% year over year to $1 billion in the quarter. The rise was mainly driven by an elevation in mostly all components of expenses.
Improvement in Assets Under Management and Custody
As of Sep 30, 2018, Northern Trust’s total assets under custody increased 6% year over year to $8.2 trillion, while total assets under management rose 4% to $1.2 trillion.
Credit Quality: A Marked Improvement
Total allowance for credit losses came in at $140.5 million, down 19% year over year. Net recoveries were $0.3 million, down 81% from the year-ago quarter figure. Further, non-performing assets decreased 14.2% year over year to $124.9 million as of Sep 30, 2018. Credit provision was $9 million in the quarter compared with $7 million credit provision reported in the prior-year quarter.
Strong Capital Position
Under the Advanced Approach, as of Sep 30, 2018, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 14.8%, 16.7% and 7.8%, compared with 14.6%, 16.4% and 8%, respectively, in the prior-year quarter. All ratios exceeded the regulatory requirements.
Return on average common equity was 15.1% compared with 12.2% in the prior-year quarter. Return on average assets was 1.22% compared with 0.98% in the year-ago quarter.
Capital Deployment Update
During the reported quarter, the company repurchased 2.17 million shares for $235.9 million, at an average price of $108.62 per share. This includes shares related to share-based compensation.
Outlook
Based on a portfolio of initiatives, management anticipates realizing $250 million in expense run-rate savings by 2020. On a combined basis, these charges will create approximately $55 million in annualized net savings and these savings are expected to be fully realized by the first quarter of 2019.
Recent News
Northern Trust Increases Its Prime Lending Rate by 25 Bps - Dec 19, 2018
Pursuant to the U.S. Federal Reserve interest rates hike by 25 bps, Northern Trust raised its prime lending rate to 5.50% from 5.25%. Previously in September 2018, the bank had raised the rate to 5.25% from 5.00%
Northern Trust to Boost FX Business With BEx Buyout - Dec 4, 2018
With an aim to further strengthen its Global Foreign Exchange business, Northern Trust has announced a deal to acquire Chicago-based BEx LLC — a foreign exchange (FX) software solutions provider. Notably, the financial terms and other details related to the agreement have not been disclosed.
The deal builds on the exclusive partnership between Northern Trust and BEx, which was announced in 2016. The acquisition provides the company the ownership of a platform that offers algorithmic FX trading, global liquidity aggregation as well as transparency in execution and pricing to institutional clients across the globe.
The buyout will further provide support to Northern Trust’s global FX execution capabilities. Pete Cherecwich, President of Corporate & Institutional Services at Northern Trust said, “In an evolving FX marketplace, this acquisition provides a foundation for sustained growth and innovation on behalf of our clients.”
Additionally, the acquisition of BEx will significantly strengthen Northern Trust’s capability to launch innovative products along with further improving the speed, reliability and quality of its FX services.
Over the past few years, Northern Trust has been integrating BEx technology with its global FX platforms, including CompleteFX and FX Algo Suite. These efforts have substantially supported the company’s FX operations.
Dividend Update
On Oct 16, Northern Trust announced a quarterly common stock dividend of 55 cents per share on its common stock. The dividend will be paid on Jan 1, 2019, to shareholders of record as of Dec 14, 2018.
Industry Analysis(1)Zacks Industry Rank: NA
Top Peers
| Fifth Third Bancorp (FITB) |
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| M&T Bank Corporation (MTB) |
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| KeyCorp (KEY) |
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| State Street Corporation (STT) |
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| Comerica Incorporated (CMA) |
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| BankUnited, Inc. (BKU) |
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| The PNC Financial Services Group, Inc (PNC) |
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| Truist Financial Corporation (TFC) |
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| The Bank of New York Mellon Corporation (BK) |
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Industry Comparison Banks - Major Regional | Position in Industry: 1 of 15 |
Industry Peers |
NTRS  |
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| Market Cap | 17.04 B |
| # of Analysts | 6 |
| Dividend Yield | 3.60% |
| Value Score | |
| Cash/Price | 2.78 |
| EV/EBITDA | -4.77 |
| PEG Ratio | 1.19 |
| Price/Book (P/B) | 1.52 |
| Price/Cash Flow (P/CF) | 8.68 |
| P/E (F1) | 12.22 |
| Price/Sales (P/S) | 1.31 |
| Earnings Yield | 8.19% |
| Debt/Equity | 0.61 |
| Cash Flow ($/share) | 9.60 |
| Growth Score | |
| Hist. EPS Growth (3-5 yrs) | 0.96% |
| Proj. EPS Growth (F1/F0) | 9.08% |
| Curr. Cash Flow Growth | -7.44% |
| Hist. Cash Flow Growth (3-5 yrs) | -1.40% |
| Current Ratio | 0.71 |
| Debt/Capital | 36.02% |
| Net Margin | 7.59% |
| Return on Equity | 12.57% |
| Sales/Assets | 0.09 |
| Proj. Sales Growth (F1/F0) | 6.99% |
| Momentum Score | |
| Daily Price Chg | 0.00% |
| 1 Week Price Chg | -1.36% |
| 4 Week Price Chg | -0.30% |
| 12 Week Price Chg | -1.47% |
| 52 Week Price Chg | 14.72% |
| 20 Day Average Volume | 881,588 |
| (F1) EPS Est Wkly Chg | 0.00% |
| (F1) EPS Est Mthly Chg | -0.59% |
| (F1) EPS Est Qtrly Chg | 8.40% |
| (Q1) EPS Est Mthly Chg | 0.02% |
| X Industry | S&P 500 |
|---|---|
| 44.19 B | 35.09 B |
| 8 | 18 |
| 3.66% | 1.57% |
| - | - |
| 1.35 | 0.04 |
| 0.97 | 14.85 |
| 1.76 | 2.17 |
| 1.19 | 3.42 |
| 7.83 | 13.82 |
| 11.39 | 18.25 |
| 1.52 | 2.74 |
| 8.78% | 5.45% |
| 1.12 | 0.62 |
| 8.60 | 8.64 |
| - | - |
| 6.17% | 9.87% |
| -3.25% | 7.49% |
| -4.69% | 3.44% |
| -0.03% | 6.81% |
| 0.85 | 1.22 |
| 50.24% | 39.29% |
| 12.13% | 11.95% |
| 11.80% | 16.63% |
| 0.06 | 0.54 |
| -0.06% | 4.08% |
| - | - |
| 0.00% | 0.00% |
| -2.57% | -0.06% |
| 0.69% | 3.69% |
| 6.17% | 3.39% |
| 40.23% | 26.14% |
| 3,053,120 | 1,965,451 |
| 0.00% | 0.00% |
| 0.19% | 0.04% |
| 0.98% | 0.30% |
| -0.09% | -0.03% |
| FITB | MTB | KEY |
|---|---|---|
| 25.48 B | 25.14 B | 13.65 B |
| 11 | 8 | 10 |
| 3.76% | 3.45% | 5.66% |
 | |  |
| 1.05 | 1.35 | 1.14 |
| 3.65 | 0.97 | 7.14 |
| 2.58 | 2.95 | 0.70 |
| 1.50 | 1.00 | 1.13 |
| 8.35 | 7.61 | 9.46 |
| 11.39 | 10.74 | 12.70 |
| 1.95 | 1.91 | 1.28 |
| 8.78% | 9.31% | 7.87% |
| 0.91 | 0.46 | 1.72 |
| 4.46 | 19.80 | 1.53 |
| | |
| 11.22% | 6.81% | -1.43% |
| 1.54% | -12.80% | 3.68% |
| 3.30% | 13.27% | -25.71% |
| 6.70% | 9.21% | -8.26% |
| 0.81 | 1.00 | 0.87 |
| 44.81% | 29.65% | 58.82% |
| 17.70% | 19.52% | 7.53% |
| 16.11% | 10.68% | 8.89% |
| 0.06 | 0.06 | 0.06 |
| -0.70% | -5.62% | -0.06% |
|  | |
| 0.00% | 0.00% | 0.00% |
| -1.35% | -1.05% | -4.92% |
| 0.68% | 3.53% | -1.70% |
| 4.99% | 7.65% | -0.69% |
| 47.47% | 21.89% | 46.41% |
| 3,053,120 | 696,597 | 9,021,798 |
| 0.00% | 0.00% | 0.00% |
| 2.07% | 0.19% | -0.71% |
| 3.53% | -0.54% | -3.32% |
| 1.59% | 0.33% | -0.39% |
Zacks Stock Rating System
We offer two rating systems that take into account investors' holding horizons; Zacks Rank and Zacks Recommendation. Each provides valuable insights into the future profitability of the stock and can be used separately or in combination with each other depending on your investment style.
Zacks Recommendation
This rating system that has an excellent track record of predicting performance over the next 6 to 12 months. The foundation for the quantitatively determined Zacks Recommendation is trends in the company's estimate revisions and earnings outlook.
The Zacks Recommendation is broken down into 3 Levels; Outperform, Neutral and Underperform. Unlike most Wall Street firms, we have an excellent balance between the number of Outperform and Neutral recommendations.
Our team of 70 analysts are fully versed in the benefits of earnings estimate revisions and how that is harnessed through the Zacks quantitative rating system. But we have given our analysts the ability to override the Zacks Recommendation for the 1200 stocks that they follow. The reason for the analyst over-rides is that there are often factors such as valuation, industry conditions and management effectiveness that a trained investment professional can spot better than a quantitative model.
Zacks Rank
The Zacks Rank is our short-term rating system that is most effective over the one- to three-month holding horizon. The underlying driver for the quantitatively-determined Zacks Rank is the same as the Zacks Recommendation, and reflects trends in earnings estimate revisions.
| Value Score |
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| Growth Score |
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| Momentum Score |
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| VGM Score |
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Zacks Style Score Education
The Zacks Style Score is as a complementary indicator to the Zacks Rank, giving investors a way to focus on the best Zacks Rank stocks that best fit their own stock picking preferences.
Academic research has proven that stocks with the best Growth, Value, and Momentum characteristics outperform the market. The Zacks Style Scores rate stocks on each of these individual styles and assigns a rating of A, B, C, D and F. An A, is better than a B; a B is better than a C; and so on.
As an investor, you want to buy stocks with the highest probability of success. That means buying stocks with a Zacks Rank #1 or #2, Strong Buy or Buy, which also has a Style Score of an A or a B.
Disclosures
This report contains independent commentary to be used for informational purposes only. The analysts contributing to this report do not hold any shares of this stock. The analysts contributing to this report do not serve on the board of the company that issued this stock. The EPS and revenue forecasts are the Zacks Consensus estimates, unless otherwise indicated in the report’s first-page footnote. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts' personal views as to the subject securities and issuers. ZIR certifies that no part of the analysts' compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report.
Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Any opinions expressed herein are subject to change.
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ZIR uses the following rating system for the securities it covers. Outperform- ZIR expects that the subject company will outperform the broader U.S. equities markets over the next six to twelve months. Neutral- ZIR expects that the company will perform in line with the broader U.S. equities markets over the next six to twelve months. Underperform- ZIR expects the company will underperform the broader U.S. equities markets over the next six to twelve months.
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