Financial Services Stocks

State Street Corp Valuation – January 2019 $STT

Company Profile (excerpt from Reuters): State Street Corporation, incorporated on October 16, 1969, is a financial holding company. The Company operates through two lines of business: Investment Servicing and Investment Management. The Company, through its subsidiary, State Street Bank and Trust Company (State Street Bank), provides a range of financial products and services to institutional investors across the world. Its clients include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of STT – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $26,077,890,728 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 567.19% Pass
5. Moderate PEmg Ratio PEmg < 20 12.32 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.06 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.58
MG Growth Estimate 4.73%
MG Value $100.16
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $80.90
MG Value based on 0% Growth $47.42
Market Implied Growth Rate 1.91%
Current Price $68.71
% of Intrinsic Value 68.60%

State Street Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.24 in 2014 to an estimated $5.58 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.91% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into State Street Corp revealed the company was trading below its Graham Number of $89.66. The company pays a dividend of $1.6 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.32, which was below the industry average of 18, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

State Street Corp fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Graham Number $89.66
PEmg 12.32
PB Ratio 1.06
Dividend Yield 2.33%
TTM Dividend $1.60
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Long-Term Debt & Capital Lease Obligation $10,335,000,000
Total Assets $234,007,000,000
Intangible Assets $7,477,000,000
Total Liabilities $209,454,000,000
Shares Outstanding (Diluted Average) 379,383,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.87
Dec2017 $5.24
Dec2016 $4.97
Dec2015 $4.47
Dec2014 $4.53
Dec2013 $4.43
Dec2012 $4.20
Dec2011 $3.79
Dec2010 $3.09
Dec2009 -$4.32
Dec2008 $4.30
Dec2007 $3.45
Dec2006 $3.29
Dec2005 $2.50
Dec2004 $2.35
Dec2003 $2.15
Dec2002 $3.10
Dec2001 $1.90
Dec2000 $1.82
Dec1999 $1.89
Dec1998 $1.33

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.58
Dec2017 $4.87
Dec2016 $4.63
Dec2015 $4.40
Dec2014 $4.24
Dec2013 $3.48
Dec2012 $2.74
Dec2011 $2.03
Dec2010 $1.42
Dec2009 $1.00
Dec2008 $3.50
Dec2007 $2.98
Dec2006 $2.73
Dec2005 $2.43
Dec2004 $2.35
Dec2003 $2.29
Dec2002 $2.24

Recommended Reading:

Other ModernGraham posts about the company

State Street Corp Valuation – March 2018 $STT
Best Stocks to Invest In: the Bank Industry – August 2016
12 Best Stocks For Value Investors This Week – 7/1/16
State Street Corp Valuation – June 2016 $STT
9 Best Stocks For Value Investors This Week – 11/28/15

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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