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A month has gone by since the last earnings report for Northern Trust Corporation NTRS. Shares have added about 1.4% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is NTRS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Northern Trust Q1 Earnings and Revenues Increase Y/Y
Driven by top-line strength, Northern Trust’s first-quarter 2018 earnings per share of $1.58 compared favorably with $1.09 recorded in the year-ago quarter. The Zacks Consensus Estimate was $1.42.
Higher revenues and credit provisions were the positives. In addition, the quarter witnessed rise in AUC and AUM. Moreover, credit metrics marked a significant improvement. However, escalating operating expenses remained a major drag.
Net income came in at $381.6 million compared with $276.1 million recorded in the prior-year quarter.
Margins & Revenues Improve, Costs Escalate
Total revenues of $1.48 billion surpassed the Zacks Consensus Estimate of $1.46 billion. Also, the figure improved 15% year over year.
On a fully-taxable equivalent basis, net interest income of $392.7 million was up 8% year over year. This was driven by elevated levels of average earning assets and higher NIM.
NIM was 1.38%, up 3 basis points from the prior-year quarter. The increase chiefly reflected higher short-term interest rate, partially offset by rise in premium amortization and a balance-sheet mix shift.
Non-interest income advanced 17% from the year-ago quarter to $1.09 billion. Rise in trust, investment and other servicing fees, along with foreign exchange trading income, security commissions and trading income, were the primary reasons for this upswing. These were partially offset by lower treasury management fees, other operating income and investment security losses.
Non-interest expenses flared up 11% year over year to $995.3 million in the quarter. The rise was mainly driven by an increase in all components of expenses.
Improvement in AUC & AUM
As of Mar 31, 2018, Northern Trust’s total AUC increased 14% year over year to $8.111 trillion, while total AUM rose 16% to $1.16 trillion.
Credit Quality Improves
Total allowance for credit losses came in at $147.8 million, down 22% year over year. Non-performing assets decreased 31% to $128.9 million as of Mar 31, 2018. Also, credit provision was $3 million in the quarter compared with $1 million reported in the prior-year quarter.
However, net charge-offs were $3 million, up 50% from the year-ago quarter.
Strong Capital Position
Under the Advanced Approach, as of Mar 31, 2018, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 14.4%, 16.2% and 7.6% compared with 14.2%, 15.6% and 8.2%, respectively, in the prior-year quarter. All ratios exceeded the regulatory requirements.
Capital Deployment Update
During the reported quarter, the company repurchased 2.5 million shares for $263.2 million at an average price of $104.51 per share. This includes shares related to share-based compensation.
Beginning with 2018, premium amortization is expected to be within $10-$12 million range. In first-quarter 2018, the company adopted a new method with one-time true-up to align the remaining amortization.
Based on a portfolio of initiatives, management anticipates realizing $250 million in expense run-rate savings by 2020. On a combined basis, these charges will create approximately $55 million in annualized net savings and these savings are expected to be fully realized by the first quarter of 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter.
Northern Trust Corporation Price and Consensus
Northern Trust Corporation Price and Consensus | Northern Trust Corporation Quote
At this time, NTRS has a poor Growth Score of F, however its Momentum is doing a lot better with a B. The stock was also allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise NTRS has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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