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Why Is State Street (STT) Down 7.5% Since Last Earnings Report?
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It has been about a month since the last earnings report for State Street Corporation (STT - Free Report) . Shares have lost about 7.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is State Street due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
State Street Q2 Earnings Beat as Revenues Rise Y/Y
State Street’s second-quarter 2024 earnings of $2.15 per share surpassed the Zacks Consensus Estimate of $2.01. The bottom line declined 1% from the prior-year quarter.
Results were primarily aided by growth in fee revenues and higher NIR. Also, the company witnessed improvements in the total AUC/A and AUM balances. However, higher expenses have hurt the results to some extent.
Net income available to common shareholders was $655 million, down 9.8% from the year-ago quarter. Our projection for the metric was $594.4 million.
Revenues Improve, Expenses Rise
Total revenues of $3.19 billion increased 2.6% year over year. Also, the top line beat the Zacks Consensus Estimate of $3.15 billion.
NIR was $735 million, up 6.4% year over year. The rise was driven by higher investment securities yields and loan growth, partially offset by deposit mix shift. Our estimate for the metric was $681.9 million.
The net interest margin contracted 6 basis points year over year to 1.13%.
Total fee revenues increased 1.5% year over year to $2.46 billion. We estimated the metric to be $2.47 billion.
Non-interest expenses were $2.27 billion, up 2.6% from the prior-year quarter. The rise was due to an increase in almost all cost components, except for compensation and employee benefits costs. Our estimate for the metric was $2.27 billion.
Provision for credit losses was $10 million against a provision benefit of $18 million in the prior-year quarter. Our prediction for the metric was $19.8 million.
The Common Equity Tier 1 ratio was 11.2% as of Jun 30, 2024, compared with 11.8% in the corresponding period of 2023. The return on common equity was 11.9% compared with 13.0% in the year-ago quarter.
Asset Balances Increase
As of Jun 30, 2024, total AUC/A was $44.31 trillion, up 11.9% year over year. The rise was driven by higher quarter-end equity market levels, net new business and client flows. We had projected the metric to be $42.19 trillion.
AUM was $4.42 trillion, up 16.3% year over year, primarily driven by higher quarter-end market levels and net inflows. Our estimate for the metric was $4.09 trillion.
Share Repurchase Update
In the reported quarter, State Street repurchased shares worth $200 million.
2024 Outlook
At the macro level, State Street’s interest rate outlook is largely in line with the current forward curve as of the second-quarter 2024-end. Also, it assumes the global equity markets to be flat with the second quarter-end for the remaining 2024 and a modest FX volatility.
The company aims to achieve $350-$400 million of servicing fee sales in 2024.
Total fee revenues are now anticipated to grow in the 4-5% range, driven by a solid start to the year and higher average market levels. Earlier, the company had targeted the metric to rise at the higher end of the 3-4% range.
Both servicing fees and management fees are expected to increase, driven by steady business momentum and higher market levels.
Given the decent first half of 2024 performance and continued benefits from the management actions taken to support NIR this year, the metric is now expected to rise marginally. This is better than the previous guidance of almost a 5% decline.
The average deposit balance grew in the second quarter of 2024 to $220.9 billion and the company expects it to remain at this level in the second half of 2024.
The company is undertaking several measures and looking into its business model to improve operating efficiency. It has planned additional productivity savings of almost $500 million driven by further business simplification, process re-engineering and automation, as well as resource optimization. These transformation and productivity initiatives are expected to help State Street save costs this year. However, given the projected rise in revenue-related costs because of improved top-line expectations, adjusted expenses are now anticipated to be up approximately 3%. This is up from the prior outlook of up to a 2.5% increase.
The company expects CET1 and Tier 1 leverage ratios to be 10-11% and 5.25-5.75%, respectively.
Preferred dividends are expected to be almost $40 million in each of the last two quarters of 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, State Street has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, State Street has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is State Street (STT) Down 7.5% Since Last Earnings Report?
It has been about a month since the last earnings report for State Street Corporation (STT - Free Report) . Shares have lost about 7.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is State Street due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
State Street Q2 Earnings Beat as Revenues Rise Y/Y
State Street’s second-quarter 2024 earnings of $2.15 per share surpassed the Zacks Consensus Estimate of $2.01. The bottom line declined 1% from the prior-year quarter.
Results were primarily aided by growth in fee revenues and higher NIR. Also, the company witnessed improvements in the total AUC/A and AUM balances. However, higher expenses have hurt the results to some extent.
Net income available to common shareholders was $655 million, down 9.8% from the year-ago quarter. Our projection for the metric was $594.4 million.
Revenues Improve, Expenses Rise
Total revenues of $3.19 billion increased 2.6% year over year. Also, the top line beat the Zacks Consensus Estimate of $3.15 billion.
NIR was $735 million, up 6.4% year over year. The rise was driven by higher investment securities yields and loan growth, partially offset by deposit mix shift. Our estimate for the metric was $681.9 million.
The net interest margin contracted 6 basis points year over year to 1.13%.
Total fee revenues increased 1.5% year over year to $2.46 billion. We estimated the metric to be $2.47 billion.
Non-interest expenses were $2.27 billion, up 2.6% from the prior-year quarter. The rise was due to an increase in almost all cost components, except for compensation and employee benefits costs. Our estimate for the metric was $2.27 billion.
Provision for credit losses was $10 million against a provision benefit of $18 million in the prior-year quarter. Our prediction for the metric was $19.8 million.
The Common Equity Tier 1 ratio was 11.2% as of Jun 30, 2024, compared with 11.8% in the corresponding period of 2023. The return on common equity was 11.9% compared with 13.0% in the year-ago quarter.
Asset Balances Increase
As of Jun 30, 2024, total AUC/A was $44.31 trillion, up 11.9% year over year. The rise was driven by higher quarter-end equity market levels, net new business and client flows. We had projected the metric to be $42.19 trillion.
AUM was $4.42 trillion, up 16.3% year over year, primarily driven by higher quarter-end market levels and net inflows. Our estimate for the metric was $4.09 trillion.
Share Repurchase Update
In the reported quarter, State Street repurchased shares worth $200 million.
2024 Outlook
At the macro level, State Street’s interest rate outlook is largely in line with the current forward curve as of the second-quarter 2024-end. Also, it assumes the global equity markets to be flat with the second quarter-end for the remaining 2024 and a modest FX volatility.
The company aims to achieve $350-$400 million of servicing fee sales in 2024.
Total fee revenues are now anticipated to grow in the 4-5% range, driven by a solid start to the year and higher average market levels. Earlier, the company had targeted the metric to rise at the higher end of the 3-4% range.
Both servicing fees and management fees are expected to increase, driven by steady business momentum and higher market levels.
Given the decent first half of 2024 performance and continued benefits from the management actions taken to support NIR this year, the metric is now expected to rise marginally. This is better than the previous guidance of almost a 5% decline.
The average deposit balance grew in the second quarter of 2024 to $220.9 billion and the company expects it to remain at this level in the second half of 2024.
The company is undertaking several measures and looking into its business model to improve operating efficiency. It has planned additional productivity savings of almost $500 million driven by further business simplification, process re-engineering and automation, as well as resource optimization. These transformation and productivity initiatives are expected to help State Street save costs this year. However, given the projected rise in revenue-related costs because of improved top-line expectations, adjusted expenses are now anticipated to be up approximately 3%. This is up from the prior outlook of up to a 2.5% increase.
The company expects CET1 and Tier 1 leverage ratios to be 10-11% and 5.25-5.75%, respectively.
Preferred dividends are expected to be almost $40 million in each of the last two quarters of 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, State Street has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, State Street has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.