In this article, let's take a look at State Street Corporation (STT, Financial), a $31.6 billion market cap bank holding company, with over $27 trillion of assets under custody and $2 trillion of assets under management.
Revenues
Looking at profitability, revenue growth by 6.38% and led earnings per share increased in the most recent quarter compared to the same quarter a year ago ($1.26 vs $1.17). During the past fiscal year, the company increased its bottom line. It earned $4.61 versus $4.19 in the previous year. This year, Wall Street expects an improvement in earnings ($4.97 versus $4.61).
Margins
The gross profit margin is considered high, at 96.16%. It has increased from the same quarter the previous year. However, the net profit margin of 20.71% is ranked higher than 55% of the 1563 Companies in the Asset Management industry.
Profitability
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| STT | State Street | 10.0 |
| BLK | BlackRock Inc | 12.5 |
| BK | Bank of New York Mellon Corp | 7.59 |
| BEN | Franklin Resources Inc | 21.94 |
| IVZ | Invesco Ltd | 11.92 |
| Ă‚ | Industry Median | 7.95 |
The company has a current ROE of 10.0% which is higher than the industry median and the one exhibit by Bank of New York Mellon (BK, Financial). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Franklin Resources (BEN, Financial) could be the option. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 16.2x, trading at a premium compared to an average of 21.4x for the industry. To use another metric, its price-to-book ratio of 1.61x indicates a discount versus the industry average of 1.09x while the price-to-sales ratio of 3.28x is below the industry average of 8.88x.
Price Performance
The stock price has risen over the past year. As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10,000 five years ago, today you could have $20,111, which represents a 15% compound annual growth rate (CAGR).
Cash dividends
Dividends have been paid since 1910, the company has a dividend policy showing its commitment to return cash to investors in the form of dividends as it generates healthy cash flow on a regular basis. Dividends totaled $257 million in 2011, $421 million in 2012, $452 million in 2013. In the first half of 2014, it has totaled $224 million. The current dividend yield is 1.48%, which can improve in the future allowing higher shareholder´s returns.
Final comment
As outlined in the article, the revenue growth and the one in earnings per share make me think about future growth expectations, as well as its high profit margin. With a higher ROE than the industry median and with attractive valuation levels, I feel bullish on this stock. Further, the increase in the stock price during the past year makes me feel more confident.
Hedge fund gurus like Jeremy Grantham (Trades, Portfolio), David Dreman (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), John Rogers (Trades, Portfolio) added this stock to their portfolios in the third quarter of 2014, as well as Pioneer Investments (Trades, Portfolio).
Disclosure: Omar Venerio holds no position in any stocks mentioned
