State Street Posts Upbeat Q2 Results, Shares Leap 2.9%

Shares of State Street Corporation (STT) jumped 2.9% on July 16 to close at $84.34 after the American financial services and bank holding company reported stronger-than-expected Q2 results, topping both earnings and revenue estimates. The beat was primarily driven by robust fee revenues and controlled expenses, leading to margin expansion and earnings growth.

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The company reported adjusted earnings of $1.97 per share, beating analysts’ expectations of $1.75 per share. Revenues of $3.03 billion exceeded the consensus estimate of $2.92 billion.

Meanwhile, earnings per share jumped 4.8% while total revenues grew 3.3% on a year-over-year basis. The company reported EPS of $1.88 in the prior-year period.

Last month, the company announced that it increased its Q2 fee revenue forecast between 4 and 5% versus 2 – 3% anticipated previously. (See STT stock charts on TipRanks)

Importantly, Fee revenues were up 5.7% year-over-year to $2.5 billion in the quarter, beating the guidance. The outperformance was driven by increased Servicing fees (up 10%) and Management fees (up 13.5%) offsetting lower Foreign exchange trading services (down 12%) and Software and processing fees (11.8%).

Notably, pre-tax margins grew 960 bps sequentially and 360 bps year-over-year to 30.9%.

During the quarter, the company increased the quarterly dividend by 10% to $0.57 per share. Furthermore, it also announced a share buyback program of up to $3 billion through 2022.

STT’s CEO Ron O’Hanley commented, “Our innovative client solutions and operational capabilities are yielding benefits across the franchise, as evidenced by another quarter of robust servicing mandates, including State Street AlphaSM, as well as a strong performance at Global Advisors.”

UBS analyst Brennan Hawken recently upgraded STT from Hold to Buy and increased the price target from $83 to $95 (12.6% upside potential).

Hawken believes that STT is a “well positioned franchise” and is currently trading at a discount to its valuation.

Consensus among analysts is a Moderate Buy based on 5 Buys and 4 Holds. The average analyst State Street price target of $94 implies 11.5% upside potential from current levels. Shares have jumped 40% over the past year.

State Street scores a “Perfect 10” on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.