State Street (NYSE:STT) stock declined over 12% on Friday following its better-than-expected second-quarter results. The share price decline can be attributed to weak net interest income (NII) guidance for the remaining quarters of 2023.
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The trust bank’s Q2 revenues increased 5% year-over-year to $3.11 billion, surpassing analysts’ estimates of $3.07 billion. Meanwhile, the company posted earnings of $2.17 a share, greater than the Street’s estimate of $2.1. Also, it compared favorably with earnings of $1.91 reported in the previous year’s quarter.
STT’s top line benefitted from an 18% surge in NII on a year-over-year basis, while fee income climbed just 2%. Furthermore, in the reported quarter, State Street reported a provision benefit of $18 million against a provision for credit losses of $10 million in the prior-year quarter.
As of June 30, 2023, total assets under custody and administration were $39.6 trillion, up 3.7% year over year. Moreover, assets under management increased 9.3% to $3.8 trillion, benefitting from higher quarter-end market levels. However, the company’s performance was somewhat impacted by lower deposits and a slight contraction in the interest margin.
STT Provides a Dull Outlook
Investors should note that State Street’s NII in the first two quarters of 2023 has declined on a sequential basis. For instance, STT’s NII dropped by 3% and 10% in the first and second quarters, respectively.
Looking forward, State Street expects NII to continue to remain under pressure. In the third quarter, management projects NII to fall between 12% and 18% sequentially, marred by lower deposit levels and continued rotation on further rate hikes. Another 2% to 6% decline is expected in the fourth quarter. Additionally, STT anticipates fee revenue to be down about 1% to 1.5%.
Is STT a Good Stock to Buy?
Following the Q2 results, three analysts maintained a Hold rating on STT stock, while two rated it a Buy. Overall, Wall Street is cautiously optimistic about STT stock. It has a Moderate Buy consensus rating based on seven Buys and eight Holds. The average price target of $83.42 implies 22.5% upside potential from the current level.
As per TipRanks data, the most accurate and profitable analyst for STT is Jefferies analyst Ken Usdin. Copying the analyst’s trades on this stock and holding each position for one year could result in 72% of your transactions generating a profit, with an impressive average return of 12.39% per trade.
