On Jun 2, 2014, we issued an updated research report on
Northern Trust Corporation
). This regional bank recently reported dismal first-quarter 2014
results. Lower-than-expected results were mainly due to a rise in
operating expenses, partially offset by top-line growth. However, a
strong capital position as well as rise in assets under management
and assets under custody were the positives. Though the company
shows stability in its fundamentals, we remain cautious due to the
current economic uncertainty across the industry.
Northern Trust reported first-quarter 2014 earnings of 75 cents per
share, missing the Zacks Consensus Estimate by 3.85%. However, it
was up 5.6% year over year. Net income for the quarter came in at
$181.4 million, up 11% year over year.
Northern Trust remains focused on managing its capital levels
efficiently. This is well evident from the clearance of the 2014
stress test. Following the Federal Reserve's approval of the
capital plan, in Apr 2014, the company increased its quarterly
common stock dividend by 6.5% to 33 cents per share. Moreover, in
first-quarter 2014, the company repurchased common stock at a cost
of $163 million and paid common stock dividends worth $75 million,
representing a dividend payout ratio of 41.3%.
Northern Trust successfully executed the Driving Performance
initiatives and contributed about $270 million in pre-tax profit
improvements in 2013, surpassing the goal of $250 million. In 2014,
the company established internal productivity targets on both the
revenue and expense side. Management expects this next round of
productivity efforts to continue to improve the financial
performance in a sustainable way, with other factors remaining
constant. The ultimate measure of the success of these efforts will
be the company's ability to consistently achieve its financial
target of a return on equity between 10% and 15%.
Despite strong fundamentals, we believe there are certain issues
that may create pressure on the company's financials in the near
term. These include a declining net interest margin due to low
interest rate environment and the prevailing stringent regulatory
Further, the Zacks Consensus Estimate over the past 60 days
declined 2.9% to $3.32 per share for 2014. Also, for 2015 it
decreased 2.1% to $3.77 per share, over the same time frame.
Northern Trust currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked finance stocks include
BofI Holding, Inc.
CVB Financial Corp.
Western Alliance Bancorporation
). All these 3 stocks carry a Zacks Rank #1 (Strong Buy).
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