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Can State Street Recover from Discounted Valuations?

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State Street’s discounted valuations

State Street’s (STT) PE (price-to-earnings) ratio stood at 14.6x on an NTM (next-12-month) basis, compared with the peer average of 17x, which means that STT has a lower valuation than its immediate peers. STT’s immediate peers include PNC Financial Services (PNC), SEI Investments (SEIC), and Invesco Limited (IVZ), which have NTM PE ratios of ~14.9x, ~23.9x, and ~12.3x, respectively.

But State Street could revive its discounted valuations going forward because its management has a favorable outlook for 2018 and expects to witness upward momentum in its business. Specifically, the management expects to see more benefits from its Beacon investments.

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Rewarding shareholders

State Street’s management has also reflected a positive view of its capital position. The company purchased common stock totaling ~$350 million in 4Q17, and it has increased its quarterly dividend. In May 2017, STT declared a quarterly dividend of $0.38 per share, and in July 2017, it declared a quarterly dividend of $0.42 per share.

On December 14, 2017, State Street declared a quarterly dividend of $0.42 per share, which it paid on January 17, 2018.

State Street’s AUM and LTM PE ratio in 4Q17

State Street’s AUM (assets under management) saw a rise of 13% in 4Q17 on a YoY (year-over-year) basis, primarily due to positive momentum in markets and the net inflows of ETFs (exchange-traded funds). This rise was negatively impacted by marginal institutional outflows.

Over the LTM (last-12-month) period, State Street’s PE ratio stood at 21.52x at the end of 4Q17. By comparison, peers (XLF) SEI Investments (SEIC), Invesco Limited (IVZ), and PNC Financial Services (PNC) had LTM PE ratios of ~33.5x, ~16.3x, and ~15.1x, respectively, at the end of 4Q17.

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