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State Street’s Valuation after 3Q17 Results

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Nov. 7 2017, Updated 10:31 a.m. ET

Valuation

State Street (STT) has a one-year forward PE (price-to-earnings) ratio of 14.72x, representing a discounted valuation. Its competitors have an average one-year forward PE ratio of 16.74x.

Peers (XLF) the Bank of New York Mellon (BK), JPMorgan Chase (JPM), and BlackRock (BLK) have one-year forward PE ratios of 14.53x, 14.56x, and 21.12x, respectively.

In 3Q17, State Street saw a YoY (year-over-year) rise of 9% for its AUM (assets under management). AUM was $2.7 trillion in 3Q17 compared to $2.4 trillion in 3Q16. The YoY rise was mainly due to new business and favorable markets. Positive flows in the company’s ETF also contributed to the rise.

State Street has a price-to-sales ratio of 3.26x on a trailing 12-month (or TTM) basis. Its peers (XLF) JPMorgan Chase (JPM), GAIN Capital Holdings (GCAP), and the Bank of New York Mellon (BK) have price-to-sales ratios of 3.77x, 1.03x, and 3.42x, respectively, on a TTM basis.

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Why lower valuations and expected rise

Net long-term institutional outflows in 3Q17 could be the main reason for State Street’s discounted valuations. In 3Q17, the company reported net interest income of $645 million, reflecting a YoY rise of 20.1%.

However, State Street could witness a rise in its valuations since the company is expected to see total fee revenue growth of 6%–7% (the high end), which is better than management’s guidance in January 2017.

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