On Wednesday, Goldman Sachs adjusted its outlook on State Street Corporation (NYSE:STT), increasing the price target to $106 from $100, while maintaining a Buy rating on the company's shares. The revision follows State Street's third-quarter earnings for 2024, which surpassed expectations.
The firm's analyst cited several reasons for the positive stance, including the potential for continued upside across various business segments. Notably, there were signs of stabilization and modest growth in State Street's Servicing business, along with potential gains in Trading and Software, particularly legacy CRM, backed by a robust pipeline of business soon to be installed.
State Street's Net Interest Income (NII) is also expected to benefit from higher deposit levels, with a relatively stable outlook anticipated for the upcoming quarters. This marks the third consecutive quarter where the financial institution's NII outlook has exceeded projections.
Additionally, an acceleration in share repurchases is anticipated for the fourth quarter of 2024, with State Street aiming for a payout ratio between 80% to 90% for the year. This strategy is projected to result in a decrease in share count of over 7% in 2024.
The firm revised its earnings per share (EPS) estimates for State Street for the years 2024 to 2026, with the new figures being $8.49, $9.75, and $10.86 respectively. These projections are slightly adjusted from the previous estimates of $8.38, $10.05, and $11.16, primarily due to lower management fee rates.
Despite these changes, the estimates remain approximately 4% above the average consensus for 2025 to 2026, as reported by Visible Alpha Consensus Data.
In conclusion, the analyst expressed that at 9 times the projected earnings for 2025, State Street's stock is still considered attractive, leading to the raised 12-month price target.
In other recent news, State Street Corporation has been making significant strides in its financial performance. The company reported a record third-quarter earnings per share (EPS) of $2.26, a considerable rise from the previous year's $1.25.
These developments have prompted analysts from Evercore ISI, Barclays, and Wells Fargo to raise their price targets for State Street to $94, $108, and $106 respectively, all maintaining an Overweight rating.
State Street's future outlook includes projections 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%. The company 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.
In addition to these financial achievements, State Street has also announced a partnership with Apollo Global Management (NYSE:APO) for private market opportunities and launched 20 new ETFs. However, the company has noted potential headwinds due to a shift in asset mix towards cash and variability in lending activity.
These are recent developments and projections that are part of State Street's ongoing business strategy.
InvestingPro Insights
State Street Corporation's recent performance aligns with Goldman Sachs' optimistic outlook. InvestingPro data shows that the company's stock is trading near its 52-week high, with a robust 45.08% price total return over the past year. This upward trend is further supported by a 28.03% price total return in the last six months, reflecting the market's positive sentiment.
Two key InvestingPro Tips reinforce the bullish stance: State Street has maintained dividend payments for 54 consecutive years and has raised its dividend for 13 consecutive years. These facts underscore the company's financial stability and commitment to shareholder returns, which complements Goldman Sachs' expectation of accelerated share repurchases.
The company's P/E ratio of 15.35 (adjusted for the last twelve months) suggests a relatively attractive valuation, especially considering the analyst's projection of continued growth. With a dividend yield of 3.31% and a market cap of $27.42 billion, State Street presents an interesting proposition for value-oriented investors.
For readers seeking a deeper analysis, InvestingPro offers 8 additional tips that could provide further insights into State Street's financial health and market position.
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