Balanced View on State Street - Analyst Blog

On March 14, 2014, we issued an updated research report on State Street Corporation STT. Though the company reported lower-than-expected fourth-quarter results, its strong balance sheet position and steady capital deployment activities remain impressive.

State Street is well positioned for organic growth. Further, management expects revenues to grow in the range of 3%–5% in 2014. Additionally, State Street remains on track to lower pre-tax expenses from operations in the range of $575 million to $625 million by the end of 2014.

Also, from the capital perspective, State Street is favorably placed. We believe that the new capital rules announced by the Federal Reserve, which require banks to maintain higher capital ratios, will not likely impact the company much owing to its capital strength. Given the strong capital position, the company continues to enhance shareholders' value through regular dividend payouts and share buyback activities.

However, State Street's earnings missed the Zacks Consensus Estimate owing to higher-than-expected non-interest expenses. Further, a drop in net interest income and deteriorating capital ratios were the other headwinds.

Additionally, the disappointing results triggered a downward revision in the Zacks Consensus Estimate, as analysts became more bearish on State Street's future performance. For 2014, the Zacks Consensus Estimate dropped nearly 1% to $4.98 per share and for 2015, the Estimate fell 4.4% to $5.63 per share in the past 60 days.

State Street now has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some better-ranked banking stocks include Wells Fargo & Company WFC, Comerica Incorporated CMA and Hancock Holding Company HBHC. All of these have a Zacks Rank #2 (Buy).