Northern Trust Gains 18% in 6 Months: How to Play the Stock Now?

Northern Trust Corporation NTRS shares have gained 18% in the past six months, against the industry’s decline of 4.3%. Shares of its peers, M&T Bank MTB and Fifth Third Bancorp FITB, have also lost 2.2% and 8%, respectively, in the same time frame.Six-Month Price PerformanceImage Source: Zacks Investment ResearchWith the stock outperforming industry and peer benchmarks, investors may wonder whether Northern Trust is worth adding to their portfolio now. To answer this, let us delve deeper and analyze its investment worthiness.What's Aiding NTRS' Performance?Steady Organic Growth: Organic growth is Northern Trust’s key strength, as reflected by its revenue and loan growth story. The balanced momentum of the net interest income (NII) and non-interest income contributed to a steady growth in revenues, which witnessed a CAGR of 7.8% over the last four years (2020-2024). The trend of both revenues and NII continued to grow at a steady rate in the first quarter of 2025. Further, non-interest income increased year over year in the first quarter of 2025, driven by higher trust and investment due to increased market values and new client flows across asset servicing and wealth management.Additionally, the company’s loan and lease balance witnessed a CAGR of 6.7% in the last four years (ending 2024). However, the trend reversed in the first quarter of 2025. Nonetheless, as the client base continues to expand, the company expects to see a rebound in loan activity, particularly as its wealth management services attract more clients. The company’s ongoing focus on wealth management is expected to drive growth in the lending portfolio in the near term.  Also, robust pipelines in the Asset Servicing segment will likely drive top-line growth.Improving Return on Equity: Northern Trust is taking concrete steps to restore operating leverage and enhance overall efficiency. The company is actively managing expenses through headcount optimization, vendor consolidation, real estate rationalization, and process automation. These initiatives are aimed at boosting productivity and aligning costs with strategic growth. Notably, in the first quarter of 2025, the company delivered its third consecutive quarter of positive operating leverage. It achieved a return on equity (ROE) of 13%, reinforcing progress toward its long-term profitability target of maintaining ROE between 10% and 15%.Manageable Debt Level: As of March 31, 2025, Northern Trust held $52 billion in Federal Reserve and Central bank deposits against $12 billion in total debt (comprising long-term debt and other borrowings), indicating a healthy liquidity buffer. The company’s higher level of liquid assets, relative to its obligations, supports its ability to meet debt requirements even under adverse economic conditions.Impressive Capital Distribution Activities:  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 quarter of 2025 alone, the company repurchased shares worth $287 million. As of March 31, 2025, 10.9 million shares remained available under the plan. Management intends to maintain this pace of buybacks in the coming quarters, subject to market conditions and capital priorities.Apart from share repurchases, the bank also pays out quarterly dividends. On April 22, 2025, Northern Trust announced a quarterly dividend of 75 cents per share on its common stock. This dividend will be paid on July 1, 2025, to its shareholders of record as of June 6, 2025.The company has increased its dividend once in the past five years, with a 38% dividend payout ratio. It has a current dividend yield of 2.7%. In comparison, M&T Bank has a dividend yield of 2.9%, while Fifth Third Bancorp has a dividend yield of 3.8%.NTRS is well-capitalized as its capital ratios remain well above the regulatory requirements. As of March 2025, the Common Equity Tier 1 ratio was 12.9% and the total capital ratio was 15.7%, both up from the prior-year period.Given the strong liquidity and capital position, NTRS’ capital distribution activities seem sustainable in the long run.How to Approach NTRS Stock NowNorthern Trust’s consistent revenue and loan growth, as well as technology-led client offerings, underscore a durable growth trajectory. A strong capital base and liquidity position support capital distribution activity. Expense management initiatives assist in improving its operating leverage.Also, the company’s earnings estimates for 2025 and 2026 have been revised upward over the past week. This upward adjustment reflects a positive sentiment among analysts and suggests encouraging prospects.Estimate Revision TrendImage Source: Zacks Investment ResearchHowever, NTRS is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 13.2X, up from the industry’s P/E of 10.7X. The company is trading at a premium compared to its peers, M&T Bank and Fifth Third Bancorp, with a P/E multiple of 10.7X and 10.5X, respectively.Price-to-Earnings (P/E) F12MImage Source: Zacks Investment ResearchHence, investors should refrain from buying NTRS stock now, given its premium valuation. Instead, they should wait for a better entry point to optimize returns. Those who already own the stock can consider holding it, given its solid long-term growth.The company currently carries a Zacks Rank #3 (Hold). 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Click to get this free report Fifth Third Bancorp (FITB): Free Stock Analysis Report M&T Bank Corporation (MTB): Free Stock Analysis Report Northern Trust Corporation (NTRS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks