Northern Trust Corporation NTRS is well-positioned to benefit from rising loan balances. Its expense management initiatives are helping to improve its operating leverage, positioning it for long-term growth. A strong liquidity position and  partnerships look encouraging.

The Zacks Consensus Estimate for NTRS’ 2024 and 2025 earnings has been revised upward over the past 60 days.

Estimate Revision Trend

Image Source: Zacks Investment Research

The positive estimate revision indicates that analysts are optimistic regarding the company’s prospects and earnings potential.

What Makes Northern Trust Stock a Solid Pick

Fed’s Interest Rate Cuts to Aid NII: The Federal Reserve announced another interest rate cut of 25 basis points on Dec. 18 despite persistent inflation. This lowered the Fed funds rates to the 4.25-4.5% range, now at the same level as in December 2022. For 2025, the Fed expects to cut interest rates twice. These rate cuts will likely lead to an improvement in net interest income (NII) as funding costs are expected to stabilize over time, which is a positive development for banks, including Comerica Incorporated CMA, Fifth Third Bancorp FITB and NTRS.

Northern Trust’s NII witnessed a compound annual growth rate (CAGR) of 11.2% over the past three years, ending 2023 with higher rates. Net interest margin (NIM) increased to 1.52% in 2023 from 1.36% in 2022 and 0.96% in 2021. Both NII and NIM increased in the first nine months of 2024.

As the interest rates come down, the demand for loans will improve gradually. This, in turn, will lead to NII and NIM expansion over time. This is expected to result in greater profitability for NTRS as it earns more interest on these loans.
Management anticipates that NII for 2024 will remain flat from $1.98 billion recorded in 2023.

Strong Organic Growth: The company is committed to growing organically. In addition to solid NII growth, NTRS’ non-interest income has seen a CAGR of 1% over the last three years (2020-2023), with the momentum continuing in the first nine months of 2024.

Rising NII and fee income contributed to a steady growth in revenues, which witnessed a CAGR of 3.5% in the same period, with the uptrend continuing in the first nine months of 2024.
 
Additionally, the company’s loan and lease balance witnessed a CAGR of 7.7% in the last three years (ending 2023). Although loans decreased in the first nine months of 2024, management believes that this is a temporary fluctuation rather than a long-term trend. As the client base continues to expand, the company expects to see a rebound in loan activity in the upcoming period. 

Expense Management Initiative to Boost Profitability: Northern Trust has taken measures to reinstate its operating leverage over the upcoming quarters. The company is focused on disciplined headcount management, vendor consolidation, rationalization of its real estate footprint and process automation. Through such efforts, the company will likely improve productivity and meet its financial targets. The ultimate measure of success of the company’s past efforts was its ability to consistently achieve its financial target of a return on equity (ROE) between 10% and 15%.

Strategic Partnerships Look Impressive: In November 2024, Northern Trust launched an upgraded active collateral solution in collaboration with CloudMargin to help institutional investors manage their collateral more efficiently while addressing ever-changing market conditions. These advanced capabilities are part of Northern Trust's full suite of collateral, derivatives and liquidity management solutions. Clients can use these services globally, either as individual components to supplement their in-house procedures or as part of a larger suite of collateral management solutions.

In October 2024, Northern Trust announced a strategic agreement with Hamilton Lane, a global leader in private markets investment. Through this partnership, Northern Trust’s Asset Servicing clients will gain access to Cobalt LP software and integrated services. This collaboration will allow Northern Trust’s clients to have access to Hamilton Lane’s private market data, analytics and tools through its suite of Northern Trust Total Portfolio Analytics solutions — an ecosystem featuring integrated technology and tools that support the entire investment lifecycle.

These partnerships demonstrated NTRS’ efforts to enhance its capabilities and provide more advanced and efficient solutions to its clients. This will help Northern Trust to expand its customer base, thus leading to increased profitability.

Manageable Debt Level: As of Sept. 30, 2024, Northern Trust’s total debt (comprising long-term debt and other borrowings) was $11 billion. The Federal Reserve and other Central Bank deposits totaled $40.8 billion as of the same date. The higher level of liquid assets compared with the company’s obligations makes the debt levels seem manageable.

Given the solid liquidity position, we believe the company will be able to consistently meet debt obligations in the near term, even if the economic situation worsens.

Impressive Capital Distributions: Northern Trust’s capital distributions seem impressive. In October 2021, the company announced a 25-million-share repurchase program with no expiration date. In the first nine months of 2024, the bank repurchased approximately 8.1 million shares. As of September 2024, 13.3 million shares remained available under the authorization.

Apart from share repurchases, the bank also pays out quarterly dividends. The company has increased its dividend once in the past five years, with a five-year annualized dividend growth of 2.08%. Currently, NTRS has a 43% dividend payout ratio, which boosts investors’ confidence and enhances shareholder value.

NTRS is well-capitalized as its capital ratios remain well above the regulatory requirements. As of Sept. 30, 2024, the Common Equity Tier 1 ratio was 12.6% and the total capital ratio was 15.6%. 

Given the strong capital position, NTRS’ capital distribution activities seem sustainable in the long run.

Northern Trust’s Price Performance

Over the past three months, NTRS shares have gained 10.6% compared with the industry’s growth of 4.2%. The stock has also outperformed its peers, CMA and FITB, over the same time frame.

Price Performance

Image Source: Zacks Investment Research

Parting Thought on NTRS

Northern Trust’s organic growth, combined with a solid capital position, is expected to bolster its financial performance in the long run. The Federal Reserve's rate cuts are anticipated to reduce funding costs over time and further enhance its NII and NIM growth. Hence, the stock is likely to have more room left to run.

Also, its expense management initiatives and strategic partnerships position it well for sustainable long-term growth.

Given the strong fundamentals and bright long-term prospects, NTRS stock is an attractive pick for investors now.

Northern Trust currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Fifth Third Bancorp (FITB) : Free Stock Analysis Report

Comerica Incorporated (CMA) : Free Stock Analysis Report

Northern Trust Corporation (NTRS) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research