State Street's stock falls harder than the market

State Street's stock has declined by 32% since the beginning of the year, while the S&P 500 has only declined by 23% over the same period.

BRAZIL - 2022/07/25: In this photo illustration, the State Street Corporation logo is displayed on a ... [+] smartphone screen. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)SOPA Images/LightRocket via Getty Images
The State Street Corporation is a leading provider of financial services and investment management solutions. With over $2 trillion in assets under management, the company is one of the largest financial institutions in the world. State Street is headquartered in Boston, Massachusetts, and has offices in more than 30 countries around the world.

State Street’s stock (NYSE: STT) has lost 32% YTD, as compared to the 23% decline in the S&P500 over the same period. Further, the stock is currently trading at $63 per share, which is 23% below its fair value of $82 – Trefis’ estimate for State Street’s valuation. The custody banking giant posted mixed results in the second quarter of 2022, with earnings outperperforming the consensus but revenues missing the mark. It reported total revenues of $2.95 billion – down 3% y-o-y, driven by a 25% rise in net interest income and growth in foreign exchange trading services. The NII benefited from higher short and long-term interest rates and growth in loan balances. On the flip side, all the components of the total fee income, except foreign exchange trading services, witnessed negative growth, leading to a 6% y-o-y decrease to $2.37 billion. Further, the Assets under Custody & Administration (AuC/A) and Assets under Management (AuM) fell 10% and 11% y-o-y, respectively. Overall, the adjusted net income decreased 2% to $712 million. Looking ahead, State Street’s stock is likely to remain under pressure in the near term given the challenging operating environment. However, the long-term outlook is positive as the company is well-positioned to benefit from the global shift to passive investing and the ongoing digital transformation in the financial services industry.

The bank's revenues grew 1% y-o-y to $6 billion in the first half of 2022. It was primarily due to a 17% rise in NII because of higher interest rates and loan growth. That said, the servicing fees decreased 4% y-o-y over the first two quarters. All in all, the adjusted net income increased 6% y-o-y to $1.3 billion. Looking at the bank's results for the first half of 2022, it's clear that they are on a good track.

The Federal Reserve's decision to raise interest rates five times in 2022 has been a boon for State Street's net interest income (NII), which is expected to continue to grow in the quarters ahead. However, the bank's servicing and management fees are likely to remain under pressure for some time. Notably, the Q3 consensus estimates for State Street's revenues are $2.97 billion. We expect the company's revenues to remain around $12.12 billion in FY2022. Additionally, State Street's adjusted net income margin is likely to remain around 20%, leading to an adjusted net income of $2.42 billion and an annual GAAP EPS of $6.84. This coupled with a P/E multiple of 12x will lead to a valuation of $82 for State Street.

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STT Return Compared With Trefis Multi-Strategy Portfolio  Trefis
With the release of STT's quarterly results, we take a look at how the company's performance compares with our Trefis Multi-Strategy Portfolio.

The Trefis Price Estimates dashboard is a great tool for investors to get a quick overview of a company's stock price. The dashboard provides a detailed analysis of a company's financials and estimates the fair value of its stock.