Boston-based State Street Corporation (STT) provides financial products and services to institutional investors worldwide. STT also offers exchange-traded funds under the SPDR ETF brand. It manages the SPDR S&P 500 Trust ETF (SPY), the first exchange-traded fund (ETF), and is now one of the largest ETF providers worldwide with $420.25 billion in assets under management.

STT recently launched three new index funds, SPDR S&P SmallCap 600 ESG ETF (ESIX), SPDR Bloomberg SASB Developed Markets Ex US ESG Select ETF (RDMX), and SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG), to enhance ESG portfolio construction.

STT shares have gained 26.5% in price over the past year and 9.9% over the past six months. However, the stock has slumped 7.1% over the past five days to close yesterday’s trading session at $93.80. Its shares tumbled after STT announced on January 19 that Cyrus Taraporevala, president and chief executive officer of State Street Global Advisors, will retire this year. STT’s investment-management pretax earnings has grown by 67% during his tenure. The stock price declined despite STT reporting better-than-expected results for its top and bottom lines for the fourth quarter. STT Global Advisors ended the past year with $4.10 trillion assets under management, up almost 50% from year’s end 2017.

Here is what could shape STT’s performance in the near term:

Mixed Financial Performance

STT’s revenues increased 4.7% year-over-year to $3.05 billion in its fiscal fourth quarter, ended December 31, topping the Street’s revenue estimate by 1.7%. Its net income came in at $697 million, indicating an increase of 29.8% year-over-year. However, its net income was down 2.4% from the prior quarter. Also, the company’s EPS increased 28.1% year-over-year to $1.78 but decreased 9.2% quarter-over-quarter. STT’s $2.00 non-GAAP EPS surpassed the consensus estimate by 6.4%.

In addition, its ROE declined 130 basis points sequentially to 10.3%, while its pre-tax margin declined 540 basis points quarter-over-quarter to 23.9% in the same period. Furthermore, STT’s 10.47% trailing-12-month ROE is 19.1% lower than the 12.94% industry average. Its 22.33% trailing-12-month net income is 26.1% lower than the 30.22% industry average.

Mixed Valuation

In terms of trailing-12-month P/E, STT is currently trading at 12.66x, which is 15.4% higher than the 10.97x industry average. Also, its 0.92x trailing-12-month PEG is 377.9% higher than the industry average.

However, STT’s forward Price/Sales is 28.3% lower than the 3.39x industry average, and its forward Price/Book is 1.1% lower than the 1.23x industry average.

Impressive Dividend Growth History

STT’s $2.28 annual dividend yields 2.51% at the current share price. On December 16, the company declared a $0.57 quarterly dividend, which was payable on Jan. 13, 2022. STT’s dividend payouts have increased at CAGRs of 7% over the past three years and 8.7% over the past five years. The company has a record of 11 consecutive years of dividend growth. It has a 29.3% dividend payout ratio.

POWR Ratings Reflect Uncertain Prospects

STT has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Value, which is consistent with its mixed valuation.

STT also has a C grade for Momentum. This is justified because the stock is trading above its 200-day moving average but below its 50-day moving average.

Of 53 stocks in the C-rated Asset Management industry, STT is ranked #35.

Beyond what I have stated above, one can also view STT’s grades for Quality, Growth, Sentiment, and Stability here.

View the top-rated stocks in the Asset Management industry here.

Bottom Line

STT is popular among dividend investors owing to its stable dividend payouts. However, the stock has declined in price over the past few days, despite the company beating the consensus estimates. Furthermore, its ROE has declined in its most recent quarter and is relatively low versus its industry peers. Also, it has a 1.61 beta, which indicates volatility. Overall, STT currently looks less attractive than its industry peers. Thus, we think it could be wise to wait for a better entry point in the stock.

How Does State Street Corporation (STT) Stack Up Against its Peers?

While STT has an overall POWR Rating of C, one might want to consider taking a look at its industry peers Silvercrest Asset Management Group Inc. (SAMG), Gamco Investors, Inc. (GBL), and Diamond Hill Investment Group, Inc. (DHIL). They7 each have an A (Strong Buy) rating.

STT shares were unchanged in premarket trading Tuesday. Year-to-date, STT has gained 0.86%, versus a -7.39% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

More...