Given the critical sustainability factor in the current sluggish economic recovery, we are downgrading our recommendation on State Street Corp. (STT) to Underperform. The company’s first-quarter earnings were in line with the Zacks Consensus Estimate.
Results for the quarter were aided mainly by an increase in revenue and growth in assets under management. However, earnings were down compared with the prior-year quarter, due primarily to higher expenses as a result of increased salaries and benefits expenditure.
Our six-month target price of $40.00 per share equates to about 12.0X our earnings estimate for 2010. Combined with a quarterly dividend of $0.01 per share, this target price implies an expected negative total return of 10.0% over that period, which is consistent with our Underperform recommendation.Zacks Investment Research
