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Higher Costs Hurt State Street (STT) Profits: Time to Sell?

Zacks Equity Research

State Street Corporation’s STT bottom line is likely to be hurt to some extent because of continuously increasing operating expenses. Moreover, the company has been witnessing downward estimate revisions of late, indicating that analysts are not very optimistic about its earnings growth potential.

The company’s Zacks Consensus Estimate for current-year earnings has been revised 1% downward over the past 30 days. Thus, the stock currently carries a Zacks Rank #4 (Sell).

In fact, State Street’s price performance does not seem impressive either. Its shares have lost 34.3% over the past year compared with 8.7% decline recorded by the industry it belongs to.

Looking at the fundamentals, the company’s operating expenses witnessed a five-year (2014-2018) CAGR of 3.5% mainly due to higher compensation and employee benefit costs as well as restructuring costs. Notably, while it successfully achieved its expense saving target through State Street Beacon in 2018, the initiative did not significantly support financials.

Moreover, despite initiating another cost-saving program, the company’s overall expenses are likely to remain elevated in the near term because of rise in acquisition-related costs. Thus, higher costs are likely to hurt the bottom line to quite an extent.

Nevertheless, the company's new business wins and rising interest rates are likely to continue supporting profitability in the quarters ahead. Moreover, its efficient capital deployment activities reflect strong balance sheet position.

A few better-ranked stocks from the finance space are Fifth Third Bancorp FITB, M&T Bank Corporation MTB and Credit Acceptance Corporation CACC.

Over the past 60 days, Fifth Third Bancorp has witnessed an upward earnings estimate revision of 1.5% for the current year. Its shares have gained 22.4% in the past three months. The stock currently carries a Zacks Rank #2 (Buy).

Currently, M&T Bank also has a Zacks Rank of 2. Its earnings estimates for 2019 have been revised 1% upward over the past 60 days. Shares of the company have gained 23.5% in the past three months.

Credit Acceptance’s share price has increased nearly 23.1% in the past three months. For 2019, its earnings estimates have been revised 10.2% upward over the past 60 days. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Fifth Third Bancorp (FITB) : Free Stock Analysis Report
State Street Corporation (STT) : Free Stock Analysis Report
M&T Bank Corporation (MTB) : Free Stock Analysis Report
Credit Acceptance Corporation (CACC) : Free Stock Analysis Report
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