Northern Trust Corporation (NASDAQ:NTRS) is one of the leaders in private banking and asset management, and operates 85 offices in the U.S., as well as 12 foreign locations. While I feel that financials in general are undervalued at the present time, it is still a good idea to seek out the companies that are the most resistant to bad economic times, and I think that Northern Trust may be one of the best examples in the sector. My question is, with shares just under their 52-week highs, is Northern Trust Corporation (NASDAQ:NTRS) still attractive, or would we be better off with another wealth management leader?
About Northern Trust: why is it recession-resistant?
Northern Trust Corporation (NASDAQ:NTRS) has $704 billion in assets under management and almost $5 trillion in assets under custody. Although it is not the largest company in its sector, it does have a leading position among affluent clients, which is the primary reason it does not suffer as badly as its competitors during recessions. In fact, over 20% of the wealthiest Americans are Northern Trust clients. The company is organized into two main business units: Corporate and Institutional Services (C&IS) and Personal Financial Services (PFS).
The company has performed exceptionally well over the recent past, as seen in the chart below. There are two main points to take away from the chart. First, notice how consistent the company’s earnings have been: since 2005 the company has never earned less than $2.47 per share or more than $3.47 per share, a very narrow spread. As a comparison, Bank of America Corp (NYSE:BAC)’s earnings varied from a loss of 39 cents per share to a profit of $4.59. Second, notice how 2008 was actually Northern Trust Corporation (NASDAQ:NTRS)’s best year in terms of profitability, in direct contrast to virtually every other major financial.
But is it too expensive?
Over the past year Northern Trust’s share price has risen by about 25%, which naturally invokes the question of whether or not the company has become overvalued. Northern Trust Corporation (NASDAQ:NTRS) is expecting earnings of $3.22 per share this year, so it trades for right around 18 times this year’s earnings. The company is expected to grow its earnings significantly over the next couple of years, due to both cost-cutting efforts as well as rising interest rates, which are widely expected as the economy continues to improve. The consensus calls for $3.59 and $4.04 per share in 2014 and 2015, respectively, which means a 3-year average earnings growth rate of 12.9%, easily justifying the P/E. However, before we go diving in, let’s take a look at the competition to see if we can find an even better deal.