State Street target raised to $105 by KBW on solid quarter

On Wednesday, State Street Corporation (NYSE:STT) had its price target increased to $105 from the previous target of $97 by Keefe, Bruyette & Woods, while the firm retained a Market Perform rating on the stock. The adjustment follows State Street's recent earnings report, which revealed a core EPS of $2.26, surpassing both the KBW projection of $2.14 and the consensus estimate of $2.12.

The company's performance was particularly bolstered by net interest income (NII), which exceeded expectations by $0.09 and contributed to a core pre-provision net revenue (PPNR) beat of $0.10. This positive outcome was slightly tempered by a modest fee beat, as gains from foreign exchange and securities lending were partially offset by lower-than-anticipated asset servicing fees.

State Street's robust balance sheet was highlighted as a key factor enabling the management to invest in products and repurchase agreements (repo) to increase market share. Despite a desire for greater margin stability in asset servicing, the analyst anticipates a strong high-teens return on tangible common equity (ROTCE).

In other recent news, State Street Corporation outperformed expectations with a record third-quarter earnings per share of $2.26, a significant increase from the previous year's $1.25. This positive performance led to Goldman Sachs, Evercore ISI, Barclays, and Wells Fargo raising their price targets for the company. The company also experienced a 7% growth in fee revenues and a 9% increase in total revenues, along with securing $466 billion in assets under custody/administration and achieving record quarterly net flows of $100 billion in its Global Advisors division.

However, BofA Securities maintained an Underperform rating on State Street, suggesting that other stocks may offer more attractive risk/reward opportunities. Deutsche Bank echoed this cautious sentiment, maintaining a Hold rating due to potential volatility in Net Interest Income and the impending departure of CFO Eric Aboaf in February 2025.

Despite these concerns, State Street has several growth initiatives in place. The company aims for total fee revenue growth at or slightly above 4% to 5%, and an upward revision of net interest income growth to 4% to 5%. It also plans to generate $1 billion in software revenue over the next five years and is on track to win 6 to 8 new Alpha clients this year.

In addition to these financial targets, State Street has recently formed a partnership with Apollo Global Management (NYSE:APO) for private market opportunities and launched 20 new ETFs.

InvestingPro Insights

State Street Corporation's recent performance aligns with several key metrics and insights from InvestingPro. The company's market cap stands at $27.61 billion, with a P/E ratio of 15.46 for the last twelve months as of Q2 2024, indicating a relatively attractive valuation compared to its peers. This valuation is particularly interesting given that State Street is trading near its 52-week high, as noted in one of the InvestingPro Tips.

The company's dividend policy is noteworthy, with an InvestingPro Tip highlighting that State Street has maintained dividend payments for 54 consecutive years and raised its dividend for 13 consecutive years. This commitment to shareholder returns is further emphasized by the current dividend yield of 3.31% and an impressive dividend growth of 20.63% over the last twelve months.

State Street's financial health is reflected in its revenue of $12.01 billion for the last twelve months as of Q2 2024, with an operating income margin of 22.06%. These figures support the analyst's observation of a strong balance sheet enabling strategic capital deployment.

InvestingPro offers additional insights, with 10 more tips available for subscribers looking to delve deeper into State Street's financial outlook and market position.

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