On Tuesday, CFRA made adjustments to its outlook on Northern Trust (NASDAQ:), reducing the stock price target to $75 from the previous $86 while keeping a Sell rating on the stock. The decision came after Northern Trust reported a significant earnings shortfall in the first quarter.
The company’s earnings per share (EPS) came in at $0.96, which was $0.43 lower than the consensus estimate. Moreover, Northern Trust’s revenue fell short by 7%, also showing a 6% year-over-year decline.
The analyst from CFRA cited a change in the forward price-to-earnings (P/E) ratio, now set at 13.5x, which is tighter than the three-year historical average of 14.8x. This adjustment was part of the rationale behind the lowered target price.
The firm also made notable reductions in their EPS estimates for Northern Trust, bringing the 2024 forecast down to $5.55 from $6.15 and the 2025 projection to $6.40 from $6.55.
Northern Trust’s first-quarter performance was further detailed, showing that while net interest income (NII) remained flat year-over-year, there was a substantial increase in interest income by 68%.
Still, this was offset by a 107% rise in interest expense, resulting in a marginal decrease in net interest margin to 1.61% from 1.62%. Trust, investment, and other servicing fees saw a 7% year-over-year increase, with asset servicing and wealth management contributing positively to segment revenue.
The firm’s client assets under custody or administration grew by 16% year-over-year to $16.5 trillion, with assets under custody also increasing by 16% to $12.8 trillion. Assets under management (AUM) saw a 13% rise to $1.5 trillion, attributed to favorable equity market conditions. Nonetheless, Northern Trust faced a 6% rise in noninterest expenses due to seasonally higher compensation costs.
Despite the growth in client assets, Northern Trust’s balance sheet reflects $49 billion in debt securities that are sensitive to unrealized losses. This includes $25.6 billion available for sale and $23.5 billion held to maturity, out of the firm’s total assets of $156 billion.
InvestingPro Insights
In light of the recent adjustments by CFRA, it is worth considering additional data provided by InvestingPro. Northern Trust’s market capitalization stands at approximately $16.33 billion, with a P/E ratio of 15.71, slightly higher than the forward P/E ratio of 13.5x cited by CFRA.
The company’s adjusted P/E ratio for the last twelve months as of Q4 2023 is 15.09, indicating a stable valuation over the recent period. Moreover, Northern Trust’s revenue remained constant year-over-year, with a slight quarterly growth of 1.34% in Q4 2023.
InvestingPro Tips reveal that Northern Trust has maintained dividend payments for 54 consecutive years, showcasing a strong commitment to shareholder returns, which is reflected in its current dividend yield of 3.41%.
Moreover, six analysts have revised their earnings upwards for the upcoming period, suggesting potential optimism about the company’s future performance despite the recent earnings shortfall.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available that could shed more light on Northern Trust’s financial health and market position. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and gain access to these insights.
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