Stock Spotlight

Northern Trust primed for growth

 

Founded in 1889, Northern Trust ($102; NTRS) ranks among the largest global custodians of financial assets for high-net-worth individuals and privately held businesses. In Quadrix®, Northern Trust also qualifies as a titan. Few stocks look more well-rounded than Northern Trust, scoring above 55 for all seven categories. Northern Trust is a true standout for Momentum (99) and Earnings Estimates (97), contributing to an Overall rank of 99. Northern Trust, yielding 3.0%, is a Focus Buy.

Business breakdown

Entering 2024, annual per-share profits had declined in three of the past four years. During that stretch of tepid results, Northern Trust implemented its largest reorganization in 20 years, the benefits of which are starting to become apparent.

Earnings per share nearly tripled in the June quarter, jumped 49% in the September quarter, and are expected to climb 38% in the December quarter. The consensus expects Northern Trust to grow per-share profits 4% in 2025 and 6% in 2026 — and estimates have steadily risen over the past 90 days. Northern Trust anticipates near-term growth to be entirely organic; acquisitions linger near the bottom of management’s list of priorities.

For the September quarter, assets under management grew 22% to $1.62 trillion. Net interest margin rose to its highest level since the March 2009 quarter. The improved profitability was driven by loan yields reaching a 23-year high and securities yields climbing to their highest level since the March 2008 quarter. Northern Trust is also seeing accelerating organic growth within the institutional-wealth business.

Northern Trust operates two segments: asset servicing (58% of revenue for the 12 months ended September, 43% of operating profit) and wealth management (42%, 57%). Asset servicing encompasses a wide range of services, including fund administration, investment management, employee-benefit services, treasury management, and brokerage. Wealth management focuses on high-net-worth individuals and privately-held businesses. The U.S. represents 68% of revenue.

Conclusion

The stock’s 3.0% yield exceeds the industry average of 2.6% for S&P 1500 Index asset managers. Dividend hikes are infrequent; Northern Trust last raised its dividend in the September 2022 quarter. But stock buybacks have trimmed the company’s share count 4% over the past three years and 16% over the past decade. Management expects stock-buyback activity to remain elevated in 2025.

Even after its 23% total return for 2024, the stock looks cheap. Northern Trust has a trailing P/E ratio of 11, well below the industry norm of 14 and its own five-year norm of 15. At 13 times estimated 2025 earnings, the stock trades at a 16% discount to its industry norm.

Northern Trust Corp., 50 S. La Salle St., Chicago, IL 60603, (312) 630-6000, www.northerntrust.com.

 

 

 

 

Quadrix Scores

 

* Earnings exclude special items.
NA Not Available.
Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.