State Street Is Riding The Wave Of Favorable Market Conditions, Analyst Says

RBC Capital analyst Gerard Cassidy reiterated a Sector Perform rating on the shares of State Street Corp STT and raised the price target from $85 to $91.

STT reported 2Q24 EPS of $2.15 versus the analyst’s $2.05 estimate.

The quarter’s strength was attributed to better-than-expected net interest income and fee revenues, partially offset by higher-than-expected noninterest expense, noted the analyst.

Net interest income (FTE) was $736 million versus the prior quarter of $717 million and the year-ago quarter of $691 million.

The company’s tangible book value (TBV) per share increased 1.6% to $45.25 from $44.56 in the prior quarter and increased 4.8% from $43.18 in the year-ago period, noted the analyst.

According to the analyst, core return on average assets (ROAA) of 0.86% increased from the prior quarter of 0.70%. Core return on average common equity (ROACE) of 11.9% increased from 9.5% in the prior quarter.

The correlation between price-to-book and price-to-tangible book value per share and ROE and ROTCE is very high and it behooves a management team to focus on long-term profitably as measured by these metrics, said the analyst.

STT continues to win new mandates for its products and services and in the past 12 months it has had over $330 million in servicing fee wins.

STT’s strong capital levels lead the analyst to consider its combined payout ratio should be ~100% for 2024 and 2025.

If the Federal Reserve cuts interest rates, the analyst expects STT to see an immediate impact to its net interest income, driven by repricing.

STT appears well positioned for the next 12 months with a strong pipeline of new business and the potential for meaningful stock buybacks, concluded the analyst.

Price Action: STT shares are trading lower by 0.39% at $84.49 at last check Wednesday.

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