State Street Corporation
) efficient capital deployment activities and its innovative
product offerings look promising and impart it a competitive
edge. The stock closed at $69.59 on Dec 17, reflecting a strong
year-to-date return of 45.8%. Going forward, with consistent
inorganic growth, supported by a strong liquidity position, there
remain chances of price appreciation. Therefore, you may continue
to hold State Street's shares in your portfolio.
However, given a still low-interest rate environment (which may
improve in the near term), deteriorating net interest margin
(NIM) and stringent regulations, we discourage further addition
of the stock to your portfolio.
Justifying the Stance
State Street's third-quarter 2013 operating earnings per share of
$1.19 were in line with the Zacks Consensus Estimate. Moreover,
this compared favorably with 99 cents earned in the year-ago
State Street continues to enhance shareholder value through share
buybacks and dividend hikes. Further, the company's restructuring
initiatives are helping to improve efficiency and boost the
Given its robust liquidity position, State Street is well
positioned to grow through acquisitions. State Street is on track
to double its non-US revenues through establishment of new
businesses in the European and Asia/Pacific markets and
achievement of the targeted acquisitions by 2014.
However, greater dependence on fee revenues and the extensive
amount of mortgage-backed and asset-backed securities in State
Street's investment portfolio keep us wary. Furthermore, despite
various measures undertaken by management, rising operating costs
remain a concern.
In line with our analysis, the Zacks Consensus Estimate for 2013
remained unchanged at $4.60 over the last 30 days. However, for
2014, it declined marginally to $5.20 over the same time frame.
Hence, the company now carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked banks worth considering include
First Interstate Bancsystem Inc.
Fifth Third Bancorp
). While First Interstate Bancsystem has a Zacks Rank #1 (Strong
Buy), Comerica and Fifth Third hold a Zacks Rank #2 (Buy).
COMERICA INC (CMA): Free Stock Analysis
FIRST INTST MT (FIBK): Free Stock Analysis
FIFTH THIRD BK (FITB): Free Stock Analysis
STATE ST CORP (STT): Free Stock Analysis
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