State Street's earnings expected to rise 56%

For more earnings forecasts, see Peter Cohan's Earnings expectations for 10 banks tell a mixed story.

Thomson Financial expects State Street Corp. (NYSE: STT) to earn $1.31 when it announces its fourth-quarter earnings on January 15th. That's 56% above the same period in 2006, when it earned $0.84.

State Street is a Boston-based bank operating in two lines of business: investment servicing and investment management. In the last year, its revenues were $5 billion and its net income totaled $1.3 billion. Its stock has gained 20% of its value in the last year, and it trades at a P/E of 21.8.

It has a strong track record of exceeding expected earnings. In the second quarter of 2007, it beat by 5.9% and in the third quarter it beat by 22.3%. My hunch is that it will beat again.

Update. I was way off on State Street. It reported a 28% decline in EPS to $0.57. The problem was legal costs for subprime mortgages of $618 million. State Street said 2008 growth will be at the lower end of its target ranges, sending the shares down as much as 8%. On the plus side, State Street beat the $1.35 average EPS estimate -- excluding one-time charges -- of 15 analysts surveyed by Bloomberg by three cents a share. But the lower guidance is killing the stock.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in State Street securities.