• Wondering if Northern Trust at US$143.32 is still offering value after a strong run, or if you are turning up late to the story.
• The stock has returned 5.2% over the last 7 days, 3.4% over the last 30 days and 2.9% year to date, with a 71.8% return over 1 year, 79.7% over 3 years and 51.6% over 5 years. This naturally raises questions about what is already priced in.
• Recent coverage around Northern Trust has focused on how a prolonged period of strong returns can reshape expectations around future growth and risk, putting extra attention on whether the current share price is justified. That context makes it especially important to separate past share price performance from the underlying value of the business today.
• Northern Trust currently has a valuation score of 3/6. The next sections will compare different valuation approaches to that score and, by the end, introduce a broader way to think about whether the current price looks reasonable.

Northern Trust delivered 71.8% returns over the last year. See how this stacks up to the rest of the Capital Markets industry.

Approach 1: Northern Trust Excess Returns Analysis

The Excess Returns model looks at how efficiently Northern Trust turns shareholder capital into profits, compared with the return investors expect. Instead of focusing on short term earnings, it asks whether the company is generating more profit on its equity than the cost of that equity.

For Northern Trust, book value is estimated at US$64.79 per share, with a stable book value of US$73.49 per share, based on weighted future book value estimates from 9 analysts. Stable EPS is estimated at US$11.95 per share, sourced from weighted future return on equity estimates from 12 analysts. That implies an average return on equity of 16.26%.

The model assumes a cost of equity of US$6.77 per share, which leads to an excess return of US$5.18 per share. Those excess returns are then projected forward and discounted to arrive at an intrinsic value of about US$162.87 per share.

Compared with the current share price of US$143.32, this Excess Returns valuation suggests Northern Trust is about 12.0% undervalued.

Result: UNDERVALUED

Our Excess Returns analysis suggests Northern Trust is undervalued by 12.0%. Track this in your watchlist or portfolio, or discover 62 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Northern Trust.

Approach 2: Northern Trust Price vs Earnings

For a profitable company like Northern Trust, the P/E ratio is a useful way to connect what you pay for each share with the earnings that support that price. It lets you quickly see how much investors are paying for each US$1 of earnings.

What counts as a “normal” P/E depends on how the market views a company’s growth potential and risk. Higher expected growth or lower perceived risk can support a higher multiple, while slower growth or higher risk usually points to a lower one.

Northern Trust currently trades on a P/E of 15.82x. That sits below the Capital Markets industry average of 36.83x and below the peer average of 20.77x. Simply Wall St’s Fair Ratio for Northern Trust is 14.25x, which reflects a tailored view that factors in its earnings profile, industry, profit margins, market cap and company specific risks.

The Fair Ratio is more useful than a simple peer or industry comparison because it adjusts for the company’s own growth outlook, risk level and business mix, rather than assuming all Capital Markets stocks deserve the same multiple.

Compared with the Fair Ratio of 14.25x, the current P/E of 15.82x points to Northern Trust being slightly overvalued on this metric.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Northern Trust Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives let you turn your view of Northern Trust into a clear story that ties together your assumptions about future revenue, earnings and margins with a forecast and a fair value. All of this sits inside Simply Wall St’s Community page, where you can see how, for example, a cautious investor might build a Narrative around the lower analyst price target of US$130.00, while an optimistic investor might anchor on the higher target of US$175.00. You can then compare each Narrative fair value with today’s share price, and watch those Narratives update automatically as new earnings, news or other data points arrive to help decide whether the current price fits your story.

Do you think there's more to the story for Northern Trust? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Disclaimer:This article represents the opinion of the author only. It does not represent the opinion of Webull, nor should it be viewed as an indication that Webull either agrees with or confirms the truthfulness or accuracy of the information. It should not be considered as investment advice from Webull or anyone else, nor should it be used as the basis of any investment decision.