Northern Trust's Top-Line Growth On Track; Should You Hold? - Analyst Blog

On Sep 4, 2014, we issued an updated research report on Northern Trust Corporation (NTRS). Strong top-line growth and appreciable rise in both assets under management and assets under custody continue to work in the company’s favor. However, poor expense management remains a weakness.

Northern Trust stays focused on organic growth with the appointment of expert professionals to propel its national oil, gas and mineral practice as well as the hedge-fund investment business. The company’s efforts for robust revenue generation were reflected in the 6% revenue growth in the first half of 2014.

Further, the bank’s better-than-expected second-quarter 2014 results demonstrated 15% year-over-year growth in assets under management and 20% growth in assets under custody. Considerable improvement in equity markets and higher volumes are expected to further aggravate the top line as well as asset growth of the company.

Moreover, Northern Trust has a strong stock repurchase program in place. Also, in Apr 2014, the quarterly cash dividend was raised 6.5% to 33 cents per share. These sustained initiatives undertaken by the bank to return capital helped boost investors’ confidence, which has been witnessed in the 11.5% year-to-date increase in share price.

On the flip side, Northern Trust continues to face challenges in the form of escalating costs, compressed margins and struggling net interest income triggered by the persisting low interest rate environment and regulatory issues.

Though the bank seems well poised to meet the growing and diversifying needs of institutional clients on the back of its ongoing investment in integrated global operating and technology platform, the volatile conditions of the global financial markets and weak economic setting could adversely affect its businesses going forward.

This can be observed in the Zacks Consensus Estimate for 2014, which remained flat over the last 30 days and decreased by a penny for 2015 over the same time period.

Northern Trust now has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some better-ranked banks include Farmers and Merchants Bancorp Inc. (FMAO), Heartland Sierra Bancorp (BSRR) and Farmers Capital Bank Corporation (FFKT). All these stocks sport a Zacks Rank #1 (Strong Buy).

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