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State Street (STT) Hurt by Rising Expenses, High Rates to Aid
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Steadily rising non-interest expenses will likely continue to hurt State Street's (STT - Free Report) bottom line growth. Also, a tough operating backdrop is a major headwind. Yet, the company will keep benefiting from new business servicing wins, synergies from strategic buyouts, global footprint, and strong balance sheet and liquidity positions.
Elevated operating expenses are expected to continue to hurt State Street’s bottom line, despite a marginal decline in the same in 2022 driven by cost-saving efforts. The total non-interest expenses increased in the first quarter of 2023.
While STT has successfully managed to control expenses through high-cost location workforce reduction and restructuring efforts, overall costs are likely to remain elevated owing to higher Information systems and communications expenses. Further, inflationary pressure and the company’s strategic buyouts and investments in franchise will weigh on the expenses. Our estimates for total non-interest expenses suggest a CAGR of 4.6% by 2025.
State Street’s largest source of revenues is fee income, which constituted more than 75% of total revenues in the first quarter of 2023. Concentration risk from higher dependence on fee-based revenues could significantly alter the company’s financial position if there is any change in individual investment preferences, regulatory amendments or a slowdown in capital market activities.
Additionally, analysts seem to be bearish on the company’s prospects. Over the past month, the Zacks Consensus estimate for earnings has been revised 9.9% and 6.4% lower for 2023 and 2024, respectively. STT currently carries a Zacks Rank #4 (Sell).
Shares of STT have lost 12.7% so far this year compared with the industry’s decline of 11.5%.
Image Source: Zacks Investment Research
Nonetheless, higher interest rates, solid business servicing wins, strategic acquisitions, global reach and efforts to technologically upgrade operations are expected to keep supporting State Street’s revenues. Our estimates for total revenues suggest a CAGR of 1.9% by 2025.
Banks Worth a Look
A couple of better-ranked bank stocks are JPMorgan (JPM - Free Report) and Pathward Financial, Inc. (CASH - Free Report) .
JPMorgan currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for JPM has been revised upward by 11.6% for 2023 over the past 30 days. The stock price has increased 1.6% over the past six months. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Earnings estimates for Pathward Financial have been revised 1.8% upward for the current year over the past 30 days. In the past six months, CASH’s shares have declined almost 1%. Currently, the company carries a Zacks Rank #2.
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State Street (STT) Hurt by Rising Expenses, High Rates to Aid
Steadily rising non-interest expenses will likely continue to hurt State Street's (STT - Free Report) bottom line growth. Also, a tough operating backdrop is a major headwind. Yet, the company will keep benefiting from new business servicing wins, synergies from strategic buyouts, global footprint, and strong balance sheet and liquidity positions.
Elevated operating expenses are expected to continue to hurt State Street’s bottom line, despite a marginal decline in the same in 2022 driven by cost-saving efforts. The total non-interest expenses increased in the first quarter of 2023.
While STT has successfully managed to control expenses through high-cost location workforce reduction and restructuring efforts, overall costs are likely to remain elevated owing to higher Information systems and communications expenses. Further, inflationary pressure and the company’s strategic buyouts and investments in franchise will weigh on the expenses. Our estimates for total non-interest expenses suggest a CAGR of 4.6% by 2025.
State Street’s largest source of revenues is fee income, which constituted more than 75% of total revenues in the first quarter of 2023. Concentration risk from higher dependence on fee-based revenues could significantly alter the company’s financial position if there is any change in individual investment preferences, regulatory amendments or a slowdown in capital market activities.
Additionally, analysts seem to be bearish on the company’s prospects. Over the past month, the Zacks Consensus estimate for earnings has been revised 9.9% and 6.4% lower for 2023 and 2024, respectively. STT currently carries a Zacks Rank #4 (Sell).
Shares of STT have lost 12.7% so far this year compared with the industry’s decline of 11.5%.
Image Source: Zacks Investment Research
Nonetheless, higher interest rates, solid business servicing wins, strategic acquisitions, global reach and efforts to technologically upgrade operations are expected to keep supporting State Street’s revenues. Our estimates for total revenues suggest a CAGR of 1.9% by 2025.
Banks Worth a Look
A couple of better-ranked bank stocks are JPMorgan (JPM - Free Report) and Pathward Financial, Inc. (CASH - Free Report) .
JPMorgan currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for JPM has been revised upward by 11.6% for 2023 over the past 30 days. The stock price has increased 1.6% over the past six months. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Earnings estimates for Pathward Financial have been revised 1.8% upward for the current year over the past 30 days. In the past six months, CASH’s shares have declined almost 1%. Currently, the company carries a Zacks Rank #2.