State Street’s move to buy the asset management business of General Electric will expand its own assets under management by about 5%. At the same time, the financial services firm is streamlining its operations to cut costs.
STATE STREET CORP. (New York symbol STT; www.statestreet.com) sells accounting and administrative services to large institutional investors such as mutual funds and pension plans.
State Street recently agreed to buy General Electric’s asset management business for $485 million. This operation manages pension plans and other portfolios for over 100 institutional investors.
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The purchase will add $100 billion to the company’s $2.3 trillion in assets under management (as of March 31, 2016). Its income rises and falls with the value of the mutual funds and other securities it manages.
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In addition, State Street is currently restructuring its operations by cutting jobs and outsourcing some of its computer systems. The plan should cut $100 million from its annual costs by the end of 2016.
These factors should increase its 2016 earnings per share by 6.5%, to $4.76. The stock trades at a low 12.2 times that forecast. The $1.36 dividend yields 2.3%.
The company provides specialized services to banks and other large financial institutions. Long-term relationships with its clients make it difficult for new competitors to enter its market.
Recommendation in Wall Street Stock Forecaster: BUY
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