On Mar 11, 2015, we issued an updated research report on State Street Corporation STT. Enhanced asset position continued to be a strength, while weak cost management remained a major near-term concern.
State Street remains well positioned for future organic growth on the back of its fundamental business activities, global exposure and broad array of innovative products and services. Moreover, the company’s focus on activity managed accounts and strong market share in higher-margin products helps in earnings growth at a faster rate compared with its peers, over the long term.
Looking into the capital deployment activities, State Street intends to increase its quarterly dividend to 34 cents per share in the second quarter of 2015 after recently clearing the 2015 stress test. Also, a $1.8 billion new stock repurchase program (effective Apr 1) was recently announced by the company. These enhanced initiatives to return capital will help the company win back investors’ confidence, which clouded by the rising litigations contributed to the 2% fall in the share price since the latest earnings release.
State Street is in talks with several governmental agencies and civil litigants relating to its indirect foreign exchange activities and intends to settle some of the possible claims. The company restated its fourth-quarter 2014 earnings, giving effect to $65 million additional legal accruals for the same.
Additionally, despite having cost saving programs in place, the company has been struggling to manage expenses prudently. With management anticipating upward pressure on regulatory compliance costs in 2015, we believe that it might take a while for State Street to cut costs and benefit from the expense-savings initiatives.
Over the past 30 days, analysts have extended mixed responses toward State Street’s growth prospects. The Zacks Consensus Estimate for 2015 increased by a penny to $5.15 per share; while for 2016, the same declined by 1.2% to $5.86 per share.
Currently, State Street carries a Zacks Rank #3 (Hold).
Some better-ranked banks stocks include Northern Trust Corp. NTRS, Preferred Bank PFBC and Western Alliance Bancorp WAL. All these stocks sport a Zacks Rank #2 (Buy).
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