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Here's Why Northern Trust (NTRS) is a Must Buy Right Now

Zacks Equity Research
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Suncor (Su) Q3 Earnings Beat on Higher Production & Prices

Suncor's (SU) third quarter delivers better-than-expected earnings on improved commodity price realizations, higher refining margins, along with robust production volumes from Hebron and Fort Hills.

In the Q2 earnings season, the Finance sector turned out to be one of the best performers. Particularly, benefits from a stabilizing economy and improving interest-rate scenario have well positioned the banking industry. Moreover, lower commercial tax rate are likely to boost banks’ profitability further.

In addition, relieving banks from some of the stringent requirements of the Dodd-Frank Act has made the companies optimistic of future earnings growth and raised investors’ sentiments as well. So, we thought of picking a stock from the sector that reflects strong fundamentals and has solid long-term growth opportunities.

Northern Trust Corporation NTRS is one such stock that not only beat estimates this season, but has also been witnessing upward estimate revisions, reflecting analysts’ optimism about its future prospects. Over the last 30 days, the Zacks Consensus Estimate for 2018 and 2019 jumped 3% and 2.7%, respectively.

Further, Northern Trust can be a solid bet now, backed by sturdy wealth-management operations with diversified products and services. The company’s focus on initiating new business to tackle macroeconomic headwinds, and continued addition of institutional clients and assets is anticipated to yield positive results for the stock.

Additionally, the recent interest rate hikes will likely stabilize the top line, in turn, creating a buying opportunity for long-term horses. Though costs escalated on ongoing investments in technology, driving compensation and equipment and software expenses for Northern Trust, management is taking steps to tackle expense growth and reinstate operating leverage. This, in turn, is anticipated to make the growth path smoother.

Furthermore, shares of Northern Trust have gained 4.8% in the last three months, outperforming 4% growth recorded by the industry.

With $135.1 billion in assets as of Jun 30, 2018, this Zacks Rank #2 (Buy) company’s strengths include stellar top-line growth, continued earnings growth and steady capital-deployment activities.

5 Reasons Why Northern Trust is an Attractive Buy  

Revenue Growth: Northern Trust’s revenues reflected compounded annual growth rate (CAGR) of 7.1%, over the last five years (2013-2017), with the increasing trend continuing in first-half 2018 as well. This impressive top-line growth was supported by the continued addition of new business, and institutional clients and assets, along with rising net interest income.

The company’s projected sales growth (F1/F0) of 12.13% (as against the industry average of about 5.06%) indicates constant upward momentum in revenues.

Earnings Per Share Strength: Northern Trust’s earnings per share witnessed growth of 13.6%, over the last three to five years. Notably, the company’s earnings are expected to display an upswing in the near term as the company’s projected EPS growth (F1/F0) is 38.04%. Also, it recorded an average positive earnings surprise of 7.47%, over the trailing four quarters.

Strong Leverage: Northern Trust’s debt/equity ratio is valued at 0.34 compared to the industry average of 0.92, indicating lower debt burden relative to the industry. It highlights the financial stability of the company even in an unstable economic environment.

Superior Return on Equity (ROE): Northern Trust’s ROE of 15.02%, as compared with the industry average of 11.7%, highlights the company’s commendable position over its peers. Notably, ROE has exceeded the company’s target between 10% and 15%.

Steady Capital Deployment: Northern Trust displayed its capital strength as it successfully cleared the 2018 Dodd-Frank Act Stress Test (DFAST). Pursuant to this, in July 2018, the company increased its quarterly common stock dividend to 55 cents per share, up 31%. The capital plan also includes repurchase of up to $1 billion of common stock between July 2018 and June 2019.

Bottom Line

Organic growth remains a key strength at Northern Trust, while cost-control efforts are likely to support bottom-line growth.

Also, the ongoing investment in integrated global operating and technology platform has enabled Northern Trust to meet the rising and diversifying needs of institutional clients, which also covers a broad range of initiatives to benefit clients and future prospects in the coming years.

Other Stocks to Consider

Comerica CMA has been witnessing upward estimate revisions for the last 60 days. Additionally, the stock jumped nearly 12.5%, year to date. It currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SunTrust Banks, Inc. STI has been witnessing upward estimate revisions, for the last 60 days. Year to date, the company’s share price has been up more than 11%. It currently flaunts a Zacks Rank of 1.

M&T Bank Corporation MTB has been witnessing upward estimate revisions for the last 60 days. Also, this Zacks #2 Ranked company’s shares have rallied nearly 2.5%, so far, this year.

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