Recent commentary has put State Street (STT) back in focus for investors, highlighting expectations for stronger sales growth, ongoing share repurchases, and a P/E of 13.3x that some see as comparatively low.
That improving story around State Street appears to be reflected in the share price, with a 90 day share price return of 22.85% and a year to date share price return of 50.01%. This has helped lift the stock to US$193.62, while the 1 year total shareholder return of 72.88% and 3 year total shareholder return of 211.06% indicate that recent momentum builds on a much longer period of strong compounding for investors.
Compare State Street's recent momentum with a curated group of financial stocks showing similar traits by scanning our 51 high quality undervalued stocks that could fit a strong growth and valuation story.
After such a strong run, State Street now trades on a 13.3x forward P/E that some investors view as undemanding. Does that recent surge still leave enough upside in the risk reward to justify new money going in?
Most Popular Narrative: 2.9% Undervalued
The most followed narrative currently pegs State Street's fair value at $199.50, just above the recent $193.62 close, which frames a modest valuation gap that investors are now debating.
The analysts have a consensus price target of $199.5 for State Street based on their expectations of its future earnings growth, profit margins and other risk factors.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $215.0, and the most bearish reporting a price target of just $150.0.
Read the complete narrative. Read the complete narrative.
Want to see what is driving that fair value gap for State Street? The core of this narrative is a specific path for revenue, earnings, and margins. Curious which profit profile and valuation multiple need to line up to get there? The full narrative lays out the exact assumptions that connect today's price to that $199.50 figure.
Result: Fair Value of $199.50 (ABOUT RIGHT)
Have a read of the narrative in full and understand what's behind the forecasts.
However, the State Street narrative still faces pressure from fee compression in ETFs and the risk that faster blockchain adoption could reduce demand for traditional custody services.
Find out about the key risks to this State Street narrative.
Another View Using The SWS DCF Model
While the main State Street narrative suggests the stock is about fairly priced around a $199.50 fair value, the SWS DCF model paints a slightly different picture. On that approach, State Street at $193.62 sits a little above an estimated future cash flow value of $188.39, which points to a small implied premium rather than a discount.
That premium is not huge. However, it hints that expectations baked into the share price may already be leaning toward the optimistic side of the model, rather than leaving a wide margin of safety. For an investor weighing fresh capital, the question is whether the cash flow story is strong enough to justify paying more than the DCF suggests today.
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out State Street for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
Reading this State Street story, the mix of optimism and caution is clear. Move quickly and weigh the data for yourself, then review the full balance of potential upsides and concerns in the 5 key rewards and 1 important warning sign.
Looking for more investment ideas beyond State Street?
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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.
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