State Street Corporation (STT:NYE) witnessed a significant drop in STT stock price, falling over 12% on Friday, following the release of its better-than-expected second-quarter results. However, despite the positive Q2 performance, STT stock decline can be attributed to the company’s disappointing net interest income (NII) projection for the remaining quarters of 2023.
State Street Corp Stock-Strong Q2 Results:
State Street’s second-quarter revenues showed a 5% year-over-year increase, reaching $3.11 billion, surpassing analysts’ estimates of $3.07 billion. Additionally, the company reported earnings of $2.17 per share, exceeding the Street’s estimate of $2.1 and showcasing improvement compared to the previous year’s quarter earnings of $1.91.
Benefiting from NII Surge:
State Street’s top-line growth was primarily driven by a remarkable 18% surge in NII on a year-over-year basis. However, fee income experienced a more modest growth of 2%. Furthermore, the company reported a provision benefit of $18 million for the quarter, compared to a provision for credit losses of $10 million in the prior-year quarter.
Assets Under Management and Administration:
As of June 30, 2023, State Street reported total assets under custody and administration of $39.6 trillion, reflecting a 3.7% year-over-year increase. Additionally, assets under management increased by 9.3% to $3.8 trillion, benefiting from higher market levels at the end of the quarter. However, the company’s performance was slightly impacted by lower deposits and a slight contraction in the interest margin.
Disappointing NII Outlook:
Investors should note that State Street’s NII for the first two quarters of 2023 has experienced sequential declines. The NII dropped by 3% and 10% in the first and second quarters, respectively.
Looking ahead, State Street expects NII to remain under pressure, with a projected sequential decline between 12% and 18% in the third quarter. This is primarily due to lower deposit levels and continued rotation driven by further rate hikes. The company also anticipates a 2% to 6% decline in NII for the fourth quarter, along with an estimated decline of approximately 1% to 1.5% in fee revenue.
STT Stock-Analyst Outlook:
Following the release of Q2 results, three analysts maintained a Hold rating on STT stock, while two rated it as a Buy. Overall, Wall Street holds a cautiously optimistic view on STT stock, resulting in a Buy consensus rating based on seven Buy ratings and eight Hold ratings. The average price target of $88.84 implies a potential upside of 30.45% from the current level.
STT Stock-Analyst Insight:
According to Stock Target Advisor’s data, Jefferies analyst Ken Usdin has been the most accurate and profitable analyst for STT stock. Following the analyst’s trades and holding each position for one year could yield profitable transactions in 72% of cases, with an impressive average return of 12.39% per trade.
Investor Considerations:
Investors should weigh the strong Q2 performance against the company’s disappointing NII guidance and evaluate the insights provided by analysts before making decisions regarding the purchase of STT stock.
