We published a report on State Street Corporation (STT) last month in the wake of its Q2 earnings results. We believe that the company is still an undervalued industry leader in the asset management and administration industry and we can see why Nelson Peltz of Trian Fund Management has a bigger position in it versus Legg Mason (LM) or Lazard (LAZ) (Trian’s other asset manager holdings). We maintain our thesis that the company is simply too cheap when we consider its valuation metrics:
- STT’s PE of 11.03X trailing earnings and 10.75X estimated 2012 EPS
- STT’s PE based on FY 2013 EPS is 9.5X
- STT is trading at a 55bp discount to book in spite of its strong ability to generate cash
We were absolutely thrilled when State Street announced its $1.8B share repurchase program at the end of Q1 2012 after it passed the Federal Reserve Stress Tests. State Street’s trust banking peers Bank of New York Mellon (BK) and Northern Trust (NTRS) also announced plans to return capital to shareholders like State Street.
However State Street’s capital action plans dwarfed the announced plans by BNY Mellon and Northern Trust. Despite the fact that BNY Mellon is a bigger company by market cap, State Street Announced a larger share repurchase program in dollar terms than BNY Mellon. BNY Mellon announced a $1.1B share repurchase program and Northern Trust announced a $240M share repurchase program. Since we pointed out that State Street announced a $1.8B share repurchase program, that exceeded the combined share repurchase program of BNY Mellon and Northern Trust by $460M. Also, State Street implemented a 33% dividend increase versus 7.14% for Northern Trust and 0% by BNY Mellon.
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