Northern Trust, CloudMargin Partner to Launch Collateral Solution

It has been about a month since the last earnings report for Northern Trust Corporation (NTRS). Shares have added about 6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Northern Trust due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Northern Trust Q3 Earnings Beat on Higher Fee Income, Costs Rise

Northern Trust’s third-quarter 2024 adjusted earnings per share of $1.96 surpassed the Zacks Consensus Estimate of $1.73. In the prior-year quarter, the company reported earnings per share of $1.49.

Results benefited from a rise in fee income. Also, an increase in total AUC and AUM balances supported financials. Strong capital ratios were another positive. However, a rise in expenses acted as a spoilsport.

Net income (GAAP basis) was $464.9 million, up 41.8% from the prior-year quarter.

Northern Trust’s Revenues & Expenses Rise

Quarterly total revenues (GAAP basis) of $1.97 billion increased 19.5% year over year. The top line also beat the Zacks Consensus Estimate of $1.87 billion.

NII on a fully taxable equivalent basis was $569.4 million in the quarter under review, up 23.1% year over year. The net interest margin (NIM) was 1.68%, up 23 basis points from the prior-year quarter.

Trust, investment and other servicing fees totaled $1.2 billion, up 7.6% from the year-ago quarter.

Other non-interest income increased 32.6% to $209.6 million from the prior-year quarter. The rise was primarily driven by a $68.1 million pre-tax gain related to the sale of an equity investment (after-tax $51.4 million) recorded in other operating income.

Non-interest expenses increased 6.4% to $1.36 billion in the reported quarter. The uptick stemmed from an elevation in all components except for occupancy and other operating expenses.

Northern Trust’s AUC and AUM Rise

As of Sept. 30, 2024, Northern Trust’s total AUC increased 25.2% year over year to $13.8 trillion. Also, total AUM rose 21.6% to $1.62 trillion.

Northern Trust’s Credit Quality: Mixed Bag

Total allowance for credit losses was $220 million, up 5% year over year.

Total non-accrual assets decreased 43.1% to $39.3 million as of Sept. 30, 2024. The company reported provisions for credit losses of $8 million in the third quarter, down 42.9% from the prior-year quarter.

Northern Trust’s Capital and Profitability Ratios Improve

Under the Standardized Approach, as of Sept. 30, 2024, the Common Equity Tier 1 capital ratio was 12.6%, up from 11.4% reported in the prior-year quarter. The total capital ratio was 15.6%, up from 14.5% in the year-ago quarter. The Tier 1 leverage ratio was 8.1% compared with 7.9% in the prior-year quarter.

Return on average assets was 1.26%, up from 0.93% in the year-ago quarter. Also, the return on average common equity was 15.4% compared with the year-earlier quarter’s 11.6%.

Northern Trust’s Capital Distribution Activities

In the reported quarter, Northern Trust returned approximately $453 million to shareholders through share repurchases and dividends.

Outlook

Fourth Quarter

Management expects total operating expenses to be up approximately 2% compared to $175.3 million in the third quarter of 2024.

2024

NII is anticipated to remain flat from $1.98 billion in 2023.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 9.28% due to these changes.

VGM Scores

Currently, Northern Trust has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Northern Trust has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Northern Trust belongs to the Zacks Banks - Major Regional industry. Another stock from the same industry, Truist Financial Corporation (TFC), has gained 7.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.

Truist Financial reported revenues of $5.09 billion in the last reported quarter, representing a year-over-year change of -10.4%. EPS of $0.97 for the same period compares with $0.84 a year ago.

Truist Financial is expected to post earnings of $0.88 per share for the current quarter, representing a year-over-year change of +8.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.3%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Truist Financial. Also, the stock has a VGM Score of D.

Zacks Investment Research

The Charles Schwab Corp. SCHW has been planning to introduce spot cryptocurrency trading once the U.S. regulations related to these assets ease, which is likely to occur once President-elect Donald Trump takes office. This was stated by the incoming CEO Rick Wurster in an interview with Bloomberg.

Rationale Behind Schwab’s Move

Wurster, who will step into the new role on Jan. 1, 2025, mentioned that Schwab’s clients have already shown interest and actively participated in the cryptocurrency space via investment vehicles such as exchange-traded funds , futures and closed-end funds, and have earned decent returns.

Now, SCHW aims to move further by directly offering cryptocurrency trading. He stated, “We’ve been waiting on a change in the regulatory environment … and we’re confident that we think that will come in short order.”

“Crypto has certainly caught many’s attention, and they’ve made a lot of money doing it,” Wurster added.

Further, Wurster shared that artificial intelligence will likely impact wealth-management business significantly. “It used to be that 60,000 times a month, we would have a phone rep spend more than three minutes searching for a piece of information to answer a client question. Now we have built an AI capability that finds that information in seconds,” he stated.

Schwab has been in the crypto space for a long time while facing competition from State Street Corp. STT and Robinhood Markets, Inc. HOOD. This August, STT entered into a strategic partnership with Taurus SA to enhance its digital solutions including crypto service. HOOD added four cryptocurrencies to its crypto platform earlier this month, bringing the total number of cryptocurrencies to 19.

Thus, by introducing crypto trading, Schwab will enter a profitable market that has seen growing demand from clients.

SCHW’s Zacks Rank & Price Performance

In the past six months, SCHW shares have gained 11.7%, underperforming the industry’s 22.7% growth.

Currently, Schwab carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

Reinsurance Group of America (RGA) is a stock many investors are watching right now. RGA is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A.

Another notable valuation metric for RGA is its P/B ratio of 1.33. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. This stock's P/B looks solid versus its industry's average P/B of 2.04. Over the past year, RGA's P/B has been as high as 1.51 and as low as 1.16, with a median of 1.33.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. RGA has a P/S ratio of 0.69. This compares to its industry's average P/S of 0.97.

Value investors will likely look at more than just these metrics, but the above data helps show that Reinsurance Group of America is likely undervalued currently. And when considering the strength of its earnings outlook, RGA sticks out at as one of the market's strongest value stocks.

Zacks Investment Research