State Street Corporation, a prominent custody banking giant, has experienced a challenging year in terms of stock performance. As of June 6, 2021, State Street's stock (NYSE: STT) has seen a 5% decline year-to-date, contrasting with the S&P 500's 9% increase over the same period. Currently trading at $74 per share, the stock is deemed to be undervalued by 14% compared to its fair value of $85, as estimated by Trefis.
Despite the financial backdrop, State Street's stock has shown minimal movement, hovering around $75 since early January 2021. This lackluster performance is further highlighted by the stock's returns of 28% in 2021, -17% in 2022, and 0% in 2023, indicating underperformance against the S&P 500 during the last year.
State Street Corporation's fourth-quarter results for 2023 revealed total revenues of $3.04 billion, a 4% decrease year-over-year primarily attributed to a 5% decline in the investment servicing segment. However, the investment management unit saw a 9% increase, with Assets under Custody & Administration (AuC/A) and Assets under Management (AuM) reaching $41.81 trillion and $4.13 trillion respectively at quarter-end.
For the full fiscal year 2023, State Street's top line decreased by 2% to $11.94 billion, driven by a 1% drop in fee revenue and a decline in total other income. Despite a 9% improvement in net interest income, total expenses rose by 9% year-over-year, resulting in an adjusted net income decrease of 32% to $1.8 billion.
Looking ahead to fiscal year 2024, State Street's revenues are projected to remain around $12.3 billion, with a slight decline in adjusted net income margin compared to the previous year, leading to an annual GAAP EPS of $5.51. With a P/E multiple just below 16x, the stock is expected to reach a valuation of $85.
Given the current uncertain macroeconomic environment, characterized by high oil prices and elevated interest rates, the question remains whether State Street Corporation will face a similar underperformance as in 2023 or witness a strong rebound in the next 12 months.
