STT stock forecast: Is it worth investing in?

Financial services company sees a strong Q3, with revenue and EPS higher than predictions

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US financial services company State Street released its Q3 results yesterday, which were higher than analysts predicted.

Revenue was up 7.6% compared to Q3 2020, with earnings per share (EPS) at $1.96. As well as strong earnings, the results focused on the acquisition of Brown Brothers Harriman (BBH) Investor Services and the $5.4trn in assets it would add to State Street.

Headquartered in Boston in the United States, State Street provides investment management, research, and financial data for investors. It is one of the largest servicers and asset managers with worldwide operations.

Beating predictions

The financial company revealed on Monday that revenue for Q3 was at $2.99bn, 7.6% higher year-on-year and just below the $3.03bn achieved in Q2.  This was higher than the $2.96bn that analysts predicted.

State Street beat earnings per share predictions as well. EPS increased from $1.45 in Q3 2020 to $1.96 this year, which was $0.08 higher than Thomson Reuters analysts’ estimates, according to Nasdaq.

Net interest income was at $487m, an increase from $467m in the previous quarter and $478m a year earlier. This was driven by higher loan balances and growth in the company's investment portfolios and deposits. The figure was higher than estimates from Zacks Investment Research, a firm that focuses on stock analysis. It predicted net interest revenue to be between $460m and $470m.

State Street experienced growth right across the business in Q3. Its servicing, management, FX trading, securities finance and software arms all saw increases in fee revenue  – the income a financial company earns from its services rather than interest payments.

BBH acquisition

During the quarter, State Street also announced the acquisition of BBH Investor Services to strengthen its leadership in asset servicing and improve its international reach.

In September, State Street announced a temporary suspension of its share repurchase program, where the company can buy back shares that were publicly sold. This suspension was to fund the $1.9bn needed for the BBH acquisition. In the Q3 results, it said share repurchasing will continue in Q2 2022.

The earnings call on Monday focused heavily on this acquisition and the future income it would bring to State Street. The company said the acquisition includes BBH’s accounting, fund administration, global markets and technology services units. This would add $5.4trn to State Street’s assets.

Ron O'Hanley, chairman and chief executive of State Street, said: "We announced in the third quarter our intention to acquire BBH Investor Services, which will further strengthen our competitive positioning and market leadership in asset servicing, deepen our international reach, propel our Alpha strategy and create long-term value for our shareholders."

State Street’s competitors

Despite State Street’s strong Q3 results, it was outperformed by its competitor BlackRock, an investment management company based in New York. BlackRock saw revenue at $5.05bn in Q3 2021, an increase of 16% year-on-year. This was $2.06bn larger compared to State Street, with the year-on-year percentage increase over twice as high.

State Street was also outperformed in revenue by Citigroup, the investment bank and financial services company headquartered in New York. Citigroup recorded Q3 2021 revenue at $17.15bn, which is $14.16bn higher than State Street. However, Citigroup’s revenue had only improved by 1% year-on-year, lower than State Street’s 7% increase.

Market reaction

After crashing at the beginning of the pandemic, State Street’s (STT) share price has been steadily increasing. On 23 March 2020 the State Street share price dropped to an all-time low of $43.08. The share price reached $77.48 on 6 January 2021 and continued to increase throughout the next ten months.

The market reacted positively to the Q3 results. The STT stock price was at $90.48 on 12 October and increased to $94.69 on 18 October, when the results were released. This is the highest STT stock price has been since 2018. Will this bullish trend continue? Here are analysts’ STT stock forecasts.

Price predictions

When looking at State Street’s (SST) stock forecast, CNN surveyed 18 analysts to give their opinion. It found a median target of $103 over the next year, with a high of $122 and a low of $92. In October, 10 out of the 18 analysts recommend buying the stock.

However, WalletInvestor’s STT stock forecast says buying State Street is a “bad long-term investment”. Its State Street price prediction for 2021 is for it to increase to $100 by the end of the year. WalletInvestor forecast this price to drop back down to $94 by the end of 2022 and to keep falling for the next five years. Its State Street price prediction for 2025 is around the $85 mark.

Gov Capital's STT stock price forecast is the opposite of WalletInvestor’s: it predicts the current bullish trend to continue and for the stock price to reach $161 in October 2022. Its State Street price forecast for the end of 2025 is $449.

FAQs

It might be. CNN reported that several analysts predict the State Street stocks will rise to $103 over the next 12 months. However, WalletInvestor’s State Street stock forecast is for a bearish trend over the next five years.

Remember that analysts can often be wrong, and that you should always make sure you do your own research before investing.

WalletInvestor predicts the STT stock price will decrease from $94 at the end of 2022 to around the $85 mark in 2025. Gov Capital predicts the opposite: for the current bullish trend to continue and the share price to reach $449 by the end of 2025.

Predictions can be wrong, so make sure you never invest more than you can afford to lose.

You can trade State Street shares today at Currency.com through tokenised assets, which are crypto derivatives whose value is linked to the value of a particular asset.

Currency.com offers the opportunity to buy with leverage, with easily defined stop losses and limits to close positions at a specified price. But remember, while leverage will allow you to make bigger profits if a stock goes up, it will also magnify your losses if the price goes down.

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