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On Monday, Morgan Stanley (NYSE:MS) issued a downgrade for Northern Trust stock, moving from an Equalweight to an Underweight rating, while also slashing the price target from $132.00 to $95.00. The stock, currently trading at $86.01, has declined nearly 13% in the past week alone, according to InvestingPro data. The revision by the analysts came amid concerns over the financial institution’s ability to manage costs relative to revenues.
Northern Trust, whose shares are traded on NASDAQ under the ticker (NASDAQ:NTRS), is facing skepticism from Morgan Stanley regarding its expense-to-trust fee ratio. Despite maintaining dividend payments for 55 consecutive years and showing a healthy dividend yield of 3.49%, the company’s financial health score on InvestingPro is rated as "FAIR." The firm’s analysts project this ratio to increase to 121% in 2025 from 115% in 2024, contrary to the company’s targets. The analysts expect that Northern Trust will not make significant progress towards its expense-to-trust fee ratio goal of 105-110%.
Morgan Stanley’s outlook includes a model that points to negative operating leverage in 2025, with a 2 percentage point decline. This is set against a backdrop where total revenues are predicted to rise by 2 percentage points, including a 5 percentage point increase in net interest income (NII) and a 1 percentage point increase in non-interest revenue (NIR). However, expenses are anticipated to grow by 4 percentage points, which is slightly below the company’s guidance of a growth rate better than 5 percentage points.
The analysts also highlighted Northern Trust’s commitment to maintaining capital ratios above its peers, suggesting this could limit the potential benefits from stock buybacks. This conservative approach to capital management is seen as a factor that may reduce the stock’s upside compared to its peers.
The new price target of $95.00 is based on an 11 times target price-to-earnings (PE) ratio for the year 2026, and a 1.3 times target price-to-book value per share (P/BVPS) against an expected 12.8% return on equity (ROE). Currently trading at a P/E ratio of 8.83, InvestingPro’s Fair Value analysis suggests the stock is undervalued. According to Morgan Stanley, this valuation indicates a more constrained potential for stock price appreciation, with an upside of 10% envisioned, compared to the performance of Northern Trust’s peers. For deeper insights into Northern Trust’s valuation and 10+ additional ProTips, including exclusive financial health metrics, explore the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Northern Trust Corporation reported better-than-expected earnings for the fourth quarter of 2024. The company’s earnings per share (EPS) reached $2.26, surpassing the forecast of $1.99, while revenue hit $1.97 billion, exceeding the anticipated $1.92 billion. This marks a significant achievement, with trust investment fees rising 12% year-over-year and net interest income increasing by 15% to a record $574 million. In addition to financial results, Northern Trust Wealth Management announced the launch of Family Office Solutions, a service aimed at ultra-high-net-worth families, led by Pam Lucina, a former Chief Fiduciary Officer. The company also revealed leadership changes, with Glenda Pedroso and Michael Bracci taking on new roles to enhance banking and advisory capabilities. These developments reflect Northern Trust’s ongoing commitment to adapting to the needs of affluent clients and maintaining its strong market position.
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