On Monday, Wolfe Research adjusted its stance on State Street Corporation (NYSE:STT), downgrading the stock to Underperform from Peer Perform. Accompanying this downgrade, the firm set a price target of $73.00 for the company's shares.
The decision to downgrade State Street's stock rating was based on a cautious outlook for the company's earnings per share (EPS) growth through 2026. Wolfe Research highlighted a significant discrepancy between consensus estimates and its own projections.
The market consensus suggests a robust increase in EPS, anticipating more than $10 per share in 2026, with growth rates of 10% and 15% for 2025 and 2026, respectively. In contrast, Wolfe Research predicts a much lower compound annual growth rate in EPS through 2026, citing multiple headwinds.
The firm identified several factors that could hinder State Street's EPS growth, including net interest income (NII) challenges due to net interest-bearing (NIB) outflows and repo normalization, as well as a less favorable fee growth trajectory.
Additionally, they pointed to potential pricing pressures and secular declines in activity. Modest expense growth and reduced excess capital and buyback capacity were also mentioned as contributing factors.
Despite State Street's current valuation appearing reasonable when viewed through the lens of 2024 and 2025 EPS, Wolfe Research's updated estimates for 2026 are more than 20% below the street. With shares trading at approximately 9 times Wolfe Research's 2026 earnings estimate, the firm sees diminished valuation support, justifying the downgrade.
In other recent news, State Street Corporation reported mixed results in its first quarter, showing growth in fee revenue and total revenue, despite challenges in servicing fees due to pricing and client transitions.
Assets under management reached a record high, and the company expects fee revenue and net interest income to be influenced by the macro environment. State Street also settled a lawsuit with the creator of the "Fearless Girl" statue, Kristen Visbal, over the sale of statue replicas.
Meanwhile, JPMorgan Chase (NYSE:JPM) and State Street were among the companies impacted by an Oklahoma law designed to prevent state pension systems from investing in companies that reduce oil and gas industry investment. However, an Oklahoma judge recently issued a temporary injunction against the law.
Furthermore, the Federal Reserve's annual stress test indicated that major U.S. banks, including State Street, JPMorgan Chase, and Bank of New York Mellon (NYSE:BK), possess the capital necessary to withstand a severe economic downturn.
The banks' high-quality capital levels would fall to 9.9% at their lowest in a severe economic scenario, still well above the required regulatory minimum. These developments are part of the recent news affecting these financial institutions.
InvestingPro Insights
Following Wolfe Research's downgrade of State Street Corporation (NYSE:STT), current metrics and InvestingPro Tips reveal a more nuanced picture of the company's financial health. State Street's management has been actively repurchasing shares, a sign of confidence in the company's value, which aligns with a robust track record of raising its dividend for 13 consecutive years. This commitment to shareholder returns is further exemplified by the fact that State Street has maintained dividend payments for an impressive 54 consecutive years.
From a valuation standpoint, State Street's market capitalization stands at $22.21 billion, with a Price/Earnings (P/E) ratio of 13.6, indicating a potentially attractive valuation compared to industry peers. Moreover, the company's Price to Book ratio as of the last twelve months leading up to Q1 2024 is 1.01, suggesting that the stock is trading close to its book value. In terms of performance, the company's operating income margin for the same period is a substantial 22.2%, highlighting efficient operations.
Investors interested in further analysis can explore additional InvestingPro Tips for State Street, which include insights on earnings revisions, profitability forecasts, and gross profit margins. For those looking to delve deeper, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. There are 6 more tips available on InvestingPro that can provide a deeper understanding of State Street's potential and market position. Find these insights at https://www.investing.com/pro/STT.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.