State Street's stock loses ground on analyst downgrades from UBS, J.P. Morgan and KBW

By Steve Gelsi

State Street's outlook for lower net interest income sparks three analyst downgrades in a day.

State Street Corp. stock fell Monday as at least three analysts cut their ratings on the trust bank on the heels of a second-quarter update that disappointed Wall Street.

State Street stock (STT) dropped 2.5%. On Friday, the stock fell 12% in its largest single-day retreat since 2020.

J.P. Morgan analyst Vivek Juneja cut his rating on State Street to underweight from neutral and reduced the stock's price target to $71 from $78.50 due to a lack of visibility, weak trends in revenues and high expense growth.

"Revenues are pressured especially in net interest income partly due to very large outflows in non-interest bearing deposits which are expected to continue to fall sharply and head back to 2011 levels," Juneja said.

"[A] pick up in trading volumes could provide short-term upside but trading revenues tend to be volatile and unpredictable," he said.

UBS analyst Brennan Hawken downgraded State Street to neutral from buy and slashed the stock's target price to $72 a share from $90 a share. Hawken said the bank is facing incremental price pressure on its servicing business, driven by expenses faced by the trust bank's core client base of active traditional asset managers.

The company's net interest income pressure and its fee-revenue risk have been raising eyebrows, Hawken said.

"While management has indicated that pricing discussions have resulted in plans to generate alternative revenues, it remains uncertain how effectively STT can capture those opportunities," Hawken said.

For its part, KBW downgraded State Street to market perform from outperform and cut its price target to $73 a share from $84 a share.

KBW analyst Michael Brown said the bank lowered its outlook for net interest income to fall by 12% to 18% in the third quarter and another 2% to 6% in the fourth quarter.

The company also said it expects fee revenue to drop by 1% to 1.5% in the third quarter.

"With less visibility and confidence in STT's fundamental outlook, and modest upside to our lowered price target, we are downgrading STT," Brown said in a research note.

The stock fell 12% on Friday when it released its second-quarter results.

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-Steve Gelsi

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07-17-23 1122ET

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