On Monday, Jefferies updated its financial outlook on State Street Corporation (NYSE:STT) stock, increasing the price target to $90 from the previous $89 while maintaining a Buy rating.
This adjustment follows State Street's first-quarter performance, where net interest income (NII) exceeded expectations due to larger-than-anticipated deposit balances. The firm has revised its full-year 2024 NII guidance to a decrease of 5%, an improvement from the prior estimate of a 10% decline.
State Street anticipates a 2% to 5% quarter-over-quarter decrease in NII for the second quarter of 2024, but expects it to stabilize above $600 million per quarter in the second half of the year.
The company's fee revenue also outperformed in the first quarter, thanks to higher market levels, leading to an updated full-year 2024 fee revenue growth forecast of 4%, up from the previous range of 3% to 4%. Despite this, servicing fees were noted to be weaker within the overall fee structure, attributed to lower client activity and the ongoing transition away from BlackRock (NYSE:BLK)'s business.
Cost control was a highlight for State Street in the first quarter, with expectations of a 2.5% increase in costs for the full year of 2024. This is in line with the potential for costs associated with higher revenue, which is estimated to grow by approximately 3% for both 2024 and 2025. Following a $100 million share buyback in the first quarter, State Street reaffirmed its guidance for a payout ratio of around 100% for the full year.
The firm also anticipates an escalation in share buybacks for the remainder of the year, estimating between $500 million to $600 million per quarter. This strategy is expected to reduce the share count by approximately 7%, in addition to providing a 3.6% dividend yield. State Street's capital ratios are projected to remain at the upper end of the 10%-11% Common Equity Tier 1 (CET1) and 5.25%-5.75% Tier 1 leverage ranges, even before any potential benefits from a more lenient Basel III finalization.
InvestingPro Insights
Following Jefferies' recent update on State Street Corporation, InvestingPro data shows a solid market capitalization of $22.85 billion and a P/E ratio that stands at 13.98, reflecting investor sentiment and market performance. Notably, the company has shown a commitment to shareholder returns, with an impressive track record of raising its dividend for 13 consecutive years, and a current dividend yield of 3.61%. Additionally, State Street has been actively managing its share count, with management aggressively buying back shares, which aligns with their strategy mentioned in Jefferies' report. Despite the recent downward revisions in earnings by analysts, InvestingPro Tips indicate that the company is expected to be profitable this year, with profitability sustained over the last twelve months.
Investors considering State Street as a potential addition to their portfolios might find these metrics encouraging, especially when combined with the company's cost control measures and positive adjustments in financial outlook. With a robust operating income margin of 23.05% and a price that is currently at 93.88% of its 52-week high, the company's financial health appears resilient. For those looking for more in-depth analysis, there are additional InvestingPro Tips available at InvestingPro, which can be accessed with a special offer using the coupon code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.