On Jun 17, 2013, we reiterated our long-term recommendation on
State Street Corporation
) at Neutral. Our decision rests on the company's various
restructuring programs, continuous acquisitions, sound capital
deployment activities and solid first-quarter 2013 earnings.
However, we remain concerned about State Street's deteriorating
net interest margin.
Why the Neutral Stance?
State Street's first-quarter 2013 operating earnings of 96 cents
per share marginally surpassed the Zacks Consensus Estimate of 93
cents. This also compared favorably with the year-ago earnings of
84 cents. Better-than-expected results were aided by improvement
in fee income, partially offset by higher operating expenses and
lower net interest income. Also, asset position and capital
ratios remained robust.
Following the result release, the Zacks Consensus Estimate went
up by 2.0% to $4.54 per share over the last 60 days. Moreover,
for 2014, the Zacks Consensus Estimate went up by 2.2% to $5.17
per share over the same time frame. The company currently has a
Zacks Rank #3 (Hold).
In May 2013, State Street hiked its dividend by 8.3% to 26 cents
per share, following the approval of its capital plan by the
Federal Reserve. Additionally, the company announced a share
repurchase program under which it would be able to buy back
shares worth up to $2.1 billion through Mar 13, 2014.
State Street's restructuring initiatives are expected to improve
its efficiency. Moreover, a solid capital position and inorganic
growth initiatives along with significant international exposure
are expected to enhance its revenue generation capacity going
On the flip side, State Street's escalating operating expenses
and deteriorating net interest margin (NIM) are expected to
hamper its bottom-line growth in the near future. Further,
sluggish economic recovery, stringent regulations and
low-interest rate environment can act as the dampeners.
Other Banks to Consider
Some better performing stocks include
Enterprise Financial Services Corp.
First Interstate Bancsystem Inc
Old Second Bancorp Inc
). All these carry a Zacks Rank #1 (Strong Buy).
ENTERPRISE FINL (EFSC): Free Stock Analysis
FIRST INTST MT (FIBK): Free Stock Analysis
OLD SECOND BCP (OSBC): Free Stock Analysis
STATE ST CORP (STT): Free Stock Analysis
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