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6 Reasons Why State Street (STT) Stock is a Solid Pick Now


Easing margin pressure, enhanced capital deployment and continued synergies from the acquisition of GE Asset Management make State Street Corporation STT a promising pick right now. Also, enhanced capital deployment activities reflect a strong balance sheet position.

Further, analysts seem to be optimistic about the company’s prospects. Over the past 60 days, the stock has witnessed three upward estimate revisions for 2017 and four upward estimate revisions for 2018. The Zacks Consensus Estimate for earnings of $6.25 and $7.04 for 2017 and 2018 reflect 18.6% and 12.6% year-over-year growth, respectively.

This Zacks Rank #2 (Buy) stock has rallied 25.6% in 2017, outperforming the industry’s gain of 18.9%.

What Makes State Street an Attractive Investment Option?

Revenue Strength: State Street has been witnessing consistent improvement in revenues. Over the past five years (2012-2016), total revenues recorded a compound annual growth rate of nearly 2%. Continuous investment in new products, new business wins and the GE Asset Management acquisition will likely strengthen the company’s revenue generation in the quarters ahead.

Additionally, its projected sales growth of 13.5% in 2017 and 5.4% in 2018 ensures continuation of the upward revenue trend.

Earnings per Share Growth: State Street has recorded an earnings growth rate of 19.9% over the last three to five years. Further, this earnings momentum is likely to continue in the near term as reflected by the company’s projected earnings per share (EPS) growth of 18.6% for 2017 and 12.6% for 2018.

Also, its long-term (three to five years) estimated EPS growth rate of 9.4% promises rewards for investors in the long run.

Impressive Capital Deployment: State Street’s capital deployment plan is commendable. The company’s 2017 capital plan (approved by the Federal Reserve) included an 11% dividend hike and $1.4 billion share repurchase authorization. Given its solid liquidity position and earnings strength, the company is expected to be able to sustain improved capital deployments and continue enhancing shareholders’ value.

Strong Leverage: State Street’s debt/equity ratio is 0.61 compared with the industry average of 0.88, indicating relatively lower debt burden. This reflects the financial stability of the company even in adverse economic conditions.

Superior Return on Equity (ROE): State Street’s ROE of 13.03% compared with the industry average of 10.29%, mirrors the company’s strong position over its peers.

Stock Looks Undervalued: State Street stock seems undervalued when compared with the broader industry. The company’s PEG ratio of 1.49 is lower than the industry average of 1.75. Also, its price-earnings (F1) ratio is 14.00, which is below the industry average of 14.57.

Other Stocks to Consider

Some other stocks in the same space worth a look are SunTrust Banks, Inc. STI, BB&T Corporation BBT and Bank of America BAC.

The Zacks Consensus Estimate for SunTrust increased 3.9% over the past 30 days, for 2018. Further, the company’s share price has increased nearly 15.3% over the past six months. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BB&T’s earnings estimates for 2018 rose 1.7%, over the past 30 days. Over the past six months, its shares have gained 13.6%. The stock carries a Zacks Rank #2.

Bank of America currently carries a Zacks Rank #2. The company’s 2018 earnings estimates moved 4.2% upward over the past 30 days. Over the past six months, its shares have rallied 21%.

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