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TheStreet Open House

10 Big Banks With Solid Revenue

Stocks in this article: C BAC WFC JPM PBCT STT FNFG FRC WFSL HBHC SIVB SBNY WTFC ISBC HBC

6. State Street

Shares of State Street (STT - Get Report) of Boston closed at $41.37 Monday, down 10% year-to-date. Based on a quarterly payout of 18 cents, the shares have a dividend yield of 1.74%.

Second-quarter net income available to common shareholders was $502 million, or a dollar a share, increasing from $427 million, or 87 cents a share, in the second quarter of 2010. The net interest margin was 1.76% in the second quarter, contracting from 2.21% a year earlier. The operating ROA for the second quarter was 1.25%, according to SNL Financial.

Second-quarter Pre-provision net revenue totaled $740 million according to SNL, increasing 47% from a year earlier. Servicing fees increased 15.5% year-over-year to $1.1 billion in the second quarter, while investment management fees were up 24% to $250 million, and securities finance revenue increased 26% to $137 million. These operating improvements were partially offset by a 20% increase in total operating expenses to $1.6 billion, which the company said mainly reflected "the impact of the reduction in incentive compensation in the second quarter of 2010."

Following State Street's second-quarter announcement, Guggenheim Securities analyst Marty Mosby reiterated his buy rating for the shares with a $54 price target, saying the company's "operating expenses ramped up faster than expected as STT invested in its business operations and IT transformational program and merit increases were granted." Mosby believes that State Street's information technology initiatives will lead to "meaningful improvement by the fourth quarter as incremental expense savings from these initiatives begins to build momentum."

The shares trade for 9.7 times the 2012 consensus EPS estimate of $4.26, for, by far, the lowest forward P/E among this group of 10 bank stocks.

Analyst sentiment for State Street is very strong, with 15 out of 18 analysts rating the shares a buy, while the remaining three analysts all have neutral ratings.

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