On Wednesday, Wells Fargo maintained its Overweight rating on State Street Corporation (NYSE:STT) and increased the price target to $106.00 from the previous $98.00. The adjustment follows State Street's reported growth in core servicing for the quarter, which also saw higher expenses. The company's updated guidance prompted Wells Fargo to revise its earnings estimates upward.
State Street's recent performance indicated a stronger core servicing growth, a change from the trends observed over the last two years. This development, along with revised guidance for the future, led to an increase in earnings per share (EPS) estimates for the forthcoming years.
Wells Fargo now expects State Street's 2024 estimated EPS to rise to $8.40, up from $8.15, reflecting the quarter's outcomes and the new guidance.
The updated guidance includes anticipated benefits from a securities restructuring that took place during the quarter. This restructuring is expected to contribute to ongoing net interest income (NII) advantages. As a result, Wells Fargo also raised its 2025 estimated EPS by $0.15 to $9.65 and its 2026 estimated EPS by $0.15 to $10.90. These adjustments account for improved NII and core trends.
The new price target of $106.00 is based on these updated estimates, suggesting that Wells Fargo anticipates State Street's stock will trade at 11 times its projected 2025 earnings. This price target reflects the firm's confidence in State Street's financial trajectory and its ability to sustain positive trends in the coming years.
In other recent news, State Street Corporation reported a record third-quarter earnings per share (EPS) of $2.26, marking a significant increase from $1.25 year-over-year. The company also experienced robust growth in fee and total revenues by 7% and 9% respectively, while effectively managing expenses.
In addition, State Street achieved record quarterly net flows of $100 billion in its Global Advisors division and won $466 billion in assets under custody/administration.
The company's future outlook includes a projection of total fee revenue growth at or slightly above 4% to 5%, and an upward revision of net interest income growth to 4% to 5%. State Street also aims to generate $1 billion in software revenue over the next five years and is on track to win 6 to 8 new Alpha clients this year.
Furthermore, the company has announced a partnership with Apollo Global Management (NYSE:APO) for private market opportunities and launched 20 new ETFs, including three actively managed digital asset ETFs.
However, State Street has noted potential headwinds due to a shift in asset mix towards cash and variability in lending activity. These are recent developments that could potentially impact the company's performance in the upcoming quarters.
InvestingPro Insights
State Street Corporation's recent performance and Wells Fargo's optimistic outlook are further supported by several key metrics from InvestingPro. The company's market cap stands at $27.42 billion, with a P/E ratio of 15.35 for the last twelve months as of Q2 2024, indicating a relatively attractive valuation compared to the broader market.
InvestingPro Tips highlight that State Street has maintained dividend payments for an impressive 54 consecutive years, demonstrating a strong commitment to shareholder returns. This is particularly noteworthy given the company's recent dividend growth of 20.63% over the last twelve months. The current dividend yield of 3.31% may be attractive to income-focused investors.
Additionally, State Street's stock has shown significant momentum, with a 28.03% price total return over the past six months. This aligns with another InvestingPro Tip indicating that the stock is trading near its 52-week high, currently at 97.06% of that peak.
These insights complement Wells Fargo's analysis, suggesting that State Street's financial health and market performance support the optimistic outlook. Investors seeking more comprehensive analysis can access additional tips and data through InvestingPro, which offers 10 more tips for State Street Corporation.
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