STT - State Street: Steady Q1 Results But Limited Upside

2024-04-24 22:17:52 ET

Summary

• State Street's shares have underperformed the market due to slow organic growth and pressure on deposit funding.
• The company's Q1 earnings beat expectations, with fee revenue rising by 4% and net interest income falling by 7%.
• State Street's low-fee business model and ongoing pricing pressure pose challenges to revenue growth, but expense management has been strong.
• Net interest income should fall modestly this year, and shares have modest upside, as its slow-growth, interest rate-driven business has limited scope for multiple expansion.

Shares of State Street ( STT ) have been a material underperformer over the past year, trading essentially flat even as the market has rallied significantly. Its slow organic growth and pressure on deposit funding in the wake of Silicon Valley Bank’s failure have weighed on shares. In October , I rated shares a “hold” and since then they have rallied 11%, below the S&P’s 18% return. A solid, but below-market return has been in keeping with my expectations, and shares are near my upper $70’s price target. With new financial results in hand, now is an opportune time to revisit STT. I still view a hold as appropriate....

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