Date: December 3, 2012 Analyst Name: Chris Letcher CIF Stock Recommendation Report (Fall 2012) Company Name and Ticker: Northern Trust Corporation (NTRS) Section (A) Summary Recommendation Buy: No Target Price: N/A Stop Loss Price: N/A Sector: Financial Services Industry: Asset Management Market Cap (in Billions): 11.49836 # of Shrs. O/S (in Millions): 239.80 Current Price: $48.13 52 WK Hi: $49.68 52 WK Low: $36.22 EBO Valuation: 41.16 Morningstar (MS) Fair Value Est.: $58.00 MS FV Uncertainty: High MS Consider Buying: $34.80 MS Consider Selling: $89.90 EPS (TTM): 4.05 EPS (FY1): 2.90 EPS (FY2): 3.33 MS Star Rating: 4 stars Next Fiscal Yr. End Year : Month : December, 2012 Last Fiscal Qtr. End: September,2012 Less Than 8 WK: Y No If Less Than 8 WK, next Earnings Ann. Date: N/A Forward P/E: 14.45 Mean LT Growth: 12.60 PEG: 1.15 Beta: 0.91 % Inst. Ownership: 82.21% Inst. Ownership Net Buy: Yes Analyst Consensus Recommendation: 2.75 Short Interest Ratio: 4.90 Short as % of Float: 2.70 Ratio Analysis Company Industry Sector P/E (TTM) 17.91 38.52 26.46 P/S (TTM) 2.96 22.22 5.57 P/B (MRQ) 1.53 3.34 1.85 P/CF (TTM) 12.31 39.53 13.50 Dividend Yield 2.50 2.48 1.95 Total Debt/Equity (MRQ) 75.87 168.79 199.62 Net Profit Margin (TTM) 16.74 59.76 16.89 ROA (TTM) 0.68 5.71 1.22 ROE (TTM) 8.80 9.66 8.06 1
Investment Thesis From my analysis I have concluded that we should NOT buy Northern Trust Corporation for the Cougar Investment Fund. There are many reasons for this recommendation. First, the stock price is very near its 52 week buy, so it will likely start to drop back down in the near future Second, NTRS is a strong company but a little too conservative in management. They hold common equity of 13% Third, short interest and days to cover are very high for NTRS. This reflects investors sentiment that the price could drop Fourth, my EBO valuation came out to 41.16, which is below current price indicating an over valued stock Fifth, the company had high PEG and P/S ratios when compared with competitors. This included State Street Corp. Sixth, institutional ownership positions are decreasing and Reuters has a bearish rating of 2.75. Seventh, recently earnings have not met expectations. Finally, I see several other stocks in the industry that look more promising but still over priced. Summary Provide brief summary of your analysis in each section that follows Company Profile: Northern Trust Corporation is a custodian bank. They specialize in protecting the assets of ultra rich clientele. The company is very conservative and stable focusing on tailoring products to wealthy individuals. Fundamental Valuation: For the EBO evaluation, I decided to use a 3 year time horizon because 12 years seemed too long for an industry with so many changes coming in the future. My computation came to 41.16 at this horizon, which was slightly below what it is currently trading for. Although the EBO is not a perfect model it worked pretty well for this stock to I put a lot of value in it. Relative Valuation: For the relative evaluation I compared Northern Trust Corp to 4 competitors. Mainly I focused on Bank of New York Mellon Corp and State Street Corp because they operate in the closest industry. Revenue and Earnings Estimates: Northern Trust Corp seems to be about 50% when it comes to beating both earnings and revenues estimates. Operating costs are low so EPS was up in the recent quarter. Analyst Recommendations: At the moment analysts generally have a hold recommendation. To me this is very bearish because analysts are normally more aggressive. Morningstar gave them a 4 star rating Institutional Ownership: The company is currently 82.21% owned by institutions and only one company owns over 5%. At the moment positions are decreasing, which could raise concern in the future. Short Interest: Short interest measures investors perceptions of future stock price. If more investors are shorting then there is greater concern about the company s health. Right 2
now it is at 4.90, which raises some concern. Stock Price Chart: Over the last year Northern Trust Corp has performed well compared to competitors, however, recently they have not performed as well relative to competition. The stock price does not jump up and down a lot due to the low beta. In addition, 2009 was the biggest dip for price but it has since recovered. 3
Section (B) Company Profile (two pages maximum) Company Summary Northern Trust Corporation is a custodian bank operating in the asset management industry. Custodian banks act as a safeguard for a both firms and individuals assets. Their purpose is to make sure the investor s assets are protected. Northern Trust Corp works with a variety of institutions including mutual fund companies, and report transactions to clients on a consistent basis. Its headquarters are located in Chicago, Illinois. The company is divided into two major segments, Corporate and Institutional Services (C&IS) and Personal Financial Services (PFS). As of September this year, the company had 749.7 billion dollars worth of assets under management. Northern Trust Corporation was founded in the year 1889 and is traded on the NASDAQ exchange. Business Model, Competition, Environment and Strategy The overarching statement by Northern Trust Corporation is Northern Trust Corporation is a leading provider of asset servicing, fund administration, asset management, fiduciary, and banking solutions for corporations, institution, families, and individuals worldwide. (Northern Trust Corporation annual report) Northern Trust Corporation s two major competitors are Bank of New York Mellon Corp and State Street Corp. They also compete with banks such as Citigroup and Bank of America. Northern Trust differentiates from competitors by focusing mainly on ultra rich clientele. The products they choose to market appeal to the extremely affluent. Individual bankers focus on developing relationships with these clients that span multiple generations. They offer products such as management of family businesses and managing family trusts. Northern Trust Corp has stayed true to their original business model, which is private banking. Many competitors have focused on broadening their base of clientele by offering a wide range of products including credit cards. Northern Trust has chosen to focus on holding onto clientele, which makes it very difficult for other companies to take business from them. These barriers to entry prove beneficial to Northern Trust as a whole. Northern Trust Corp has a beta of 0.91, which is very low for the sector. This means as the market goes through its cycles, Northern Trust is only 91% as volatile as the market. Private banking and asset management seem to be somewhere between growth and the maturity stage. This is because much of Northern Trust s clientele is set and the products they offer are consistent and offer steady cash flows. Most of the company s revenue comes from fees generated by custodial and management services. There is some growth in expanding internationally, an area where Northern Trust has done quite well. They hope to get in early 4
and establish healthy relationships with wealthy people in emerging markets. One area of concern for Northern Trust is the Volcker Rule. This rule stops banks from engaging in proprietary trading, which is investing company funds for the purpose of making a profit. Northern Trust has stated that this rule could substantially affect them and their clients. Generally Northern Trust is not a seasonal company since custodial management and banking are necessary year round. Overall, Northern Trust seems like a steady company and strong competitor in the industry. Revenue and Earnings History This information is available in Reuters.com, Financials tab. Copy/paste the quarterly revenue and earnings per share numbers for the most recent three years. Add the numbers over four fiscal quarters to get annual revenue and earnings. For the current fiscal year, go ahead add up as many quarters as are available. NOTE: revenue numbers are in millions. Discuss any pattern in revenue and earnings (e.g., increasing year over year; seasonal; etc.) There were no table values on Reuters for revenue Earnings Per Share Periods 2010 2011 2012 March 0.64285 0.61448 0.65865 June 0.81617 0.62089 0.73291 September 0.63719 0.69819 0.73121 December 0.64142 0.53318 Note: Units in U.S. Dollars Totals: 2.73763 2.46674 2.12277 As a whole earnings for Northern Trust have been pretty consistent over time. The year 2011 saw lower earnings in every quarter except for Q3 and 2012 so far has seen higher earnings every quarter than the previous year. Earnings are pretty steady year round for Northern Trust. This is likely because banking is necessary year round. During the summer months there is a slight rise in the general earnings trend, which could be due to the fact that people tend to sell real estate more often in the summer. Northern Trust could be generating more income during these months because of the fees that go along with managing these assets. Part of the reason for the increase from last year in Q3 earnings is Northern Trust s lower operating costs. The company s revenues stayed similar but they were able to decrease operating costs by 1%. 5
Section (C) Fundamental Valuation (EBO) Include the following here: Copy/paste completed Fundamental Valuation (EBO) Spreadsheet Inputs (provide below input values used in your analysis) EPS forecasts (FY1 & FY2): 2.90 & 3.33 Long term growth rate: 12.60% Book value /share (along with book value and number of shares outstanding): Book value: 7,117.3 (In millions) # of shares outstanding: 241.01 (In millions) Book value / share: 29.53 Dividend payout ratio: 42.98% Next fiscal year end: 2012 6
Current fiscal month: Target ROE: Output 11 5.63% Above normal growth period chosen: 3 years EBO valuation (Implied price from the spreadsheet): 41.16 Sensitivity Analysis EBO valuation would be (you can include more than one scenario in each of the following): 49.47 if changing above normal growth period to 6 years 41.98 if changing growth rate from mean (consensus) to the highest estimate 15 40.68 if changing growth rate from mean (consensus) to the lowest estimate 11.20 30.15 if changing discount rate to 12.00 61.26 if changing target ROE to 6.00 7
Section (D) Relative Valuation Copy/paste your completed relative valuation spreadsheet here Note: I could not find P/CF TTM on Reuters for State Street Corp. From the top panel Discuss whether your stock and its competitors have very different multiples. Point out if any of the five stocks have multiple that is far off from the others. Make an attempt to explain why (you would want to read analyst research report in Morningstar Direct; you should also look for comments from other financial sites). The discussions should address all of the following valuation metrics: forward P/E, PEG, P/B (MRQ), P/S (TTM), and P/CF (TTM). Compare the implied prices derived from various valuation metrics. Also compare those implied price to the stock s current price, and 52 week high and low. Northern Trust Corporation and its competitors have fairly similar table values. For example they all have close values for long term growth. Northern Trust does have a slightly larger long term growth rate when compared with State Street Corp. A likely reason for this is the fact that Northern Trust has begun building up a clientele in developing countries. The forward P/E considers how much investors are willing to pay for 1 dollar worth of earnings. Northern 8
Trust has a slightly lower forward P/E than current P/E. This indicates that earnings are expected to grow. The PEG ratio is designed to account for a company s potential growth in revenues. It can be used to see if a stock is undervalued. Stocks with a lower PEG are generally better investments. This is because it divides the forward P/E by the long term growth rate. A higher long term growth rate on the bottom will make the ratio smaller, which is why lower PEG ratios are more desirable. Northern Trust has one of the higher PEG ratios compared to competitors, which indicates the stock may be slightly overvalued. The P/B ratio compares a company s book value to its current price to demonstrate its investment potential. Low P/B ratio can indicate an undervalued stock. We must be critical when looking at P/B ratio, however, because sometimes a low P/B ratio can indicate that something is fundamentally wrong with the company. If a company has a low P/B analysts should look further to make sure nothing is wrong with the company. Compared to competitors Northern Trust has a very high P/B ratio of 1.53, which indicates an over valued stock. The reason for this high P/B could be that Northern Trust Corp has been around estimates and does not require a lot of overhead. So if liquidated today they may not hold as much value as other institutions. The P/S TTM is calculated by dividing a company s current stock price by its revenues per share for the previous 12 months (Investopedia). This ratio can help investors make comparisons across time periods. This is a good ratio to look at because it involves sales in the metric, which makes it harder for management to skew the values. Lower P/S values are seen as a positive indicator. Northern Trust Corp has the highest P/S ratio of all the companies I compared, which is not a good indicator for the company. State Street Corp had a lower P/S TTM at 2.18 as compared to Northern Trust s, which was 2.96. P/CF ratio measures a company s financial attractiveness as an investment for the last 12 months. P/CF = Share price over cash flow per share. This ratio is a good measure of relative value and companies with lower P/CF ratios are seen as better investments. Northern Trust s P/CF was 12.31, but one of its closest competitors State Street Corp did not have P/CF ratio listed. This makes it very difficult to find use for this ratio. From the bottom panel Discuss the various implied prices of your stock derived from competitors ( comparables ) multiples. How different are the prices derived from the various valuation metrics? Note any valuation metrics that seem to yield outlier prices and explain why (HINT: is that because that 9
particular valuation metrics is not very relevant for the industry? Do you best to provide convincing arguments). For each valuation metrics, Compare the current price and 52 week high /low of your stock to the High low range derived from multiples of its competitors. Among the valuation metrics analyzed, which ones do you think are most relevant as a valuation tool for your stock? The implied prices I calculated were very different when compared individually, but prices stayed fairly consistent between similar firms. For example, both Citigroup and Bank of America have similar business models so they had similar P/B ratios. The spreadsheet was most useful when comparing companies that operated in almost the exact same industry. It was harder to compare Bank of America and Citigroup to Northern Trust because they have much different market caps. I mainly focused on comparing Northern Trust to Bank of New York Mellon Corp and State Street Corp. The 52 week high for all these stocks is very near the current price. This is because the financial sector as a whole has been very successful as of late. I could not get a price based on P/CF because State Street Corp did not have this ratio listed. I believe the most useful valuation metrics was PEG. The companies all had different Forward P/E s based on future earnings predictions and price. Since the PEG takes in long term growth rate it somewhat eliminates the difference in the market caps. I believe that P/B ratio is not a good indicator within this industry. P/B can be influenced by the amount of overhead a company owns. This makes it difficult to compare companies because they are all different within the industry. A company could be performing very well and have a high P/B ratio. 10
Section (E) Revenue and Earnings Estimates Copy/Paste the Historical Surprises Table from Reuters.com, Analysts tab (include both revenue and earnings; make note that revenues might be in millions ) Historical Surprises Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Quarter Ending Sep-12 988.47 972.50 15.97-1.62 Quarter Ending Jun-12 1,003.66 988.50 15.16-1.51 Quarter Ending Mar-12 973.22 965.40 7.82-0.80 Quarter Ending Dec-11 970.43 955.60 14.83-1.53 Quarter Ending Sep-11 961.08 971.50 10.42 1.08 Earnings (per share) Quarter Ending Sep-12 0.74 0.75 0.01 1.72 Quarter Ending Jun-12 0.75 0.74 0.01-1.31 Quarter Ending Mar-12 0.65 0.67 0.02 2.42 Quarter Ending Dec-11 0.68 0.67 0.01-1.14 Quarter Ending Sep-11 0.69 0.71 0.02 2.75 Review recent trends in company s reported revenue and earnings, and discuss whether (1) the company has a pattern of surprising the market with numbers different from analysts estimates; (2) Were they positive(actual greater than estimate) or negative (actual less than estimate) surprises? (3) Were surprises more notable for revenue or earnings? (4) Look up the stock chart to see how the stock price reacted to the surprises. NOTE: Reuters does not put the sign on the surprise. You need to put a negative sign when it is a negative surprise. Analysts seem to be close usually when predicting Northern Trust s revenue and earnings. This could be due to their low beta and consistent performance year to year. There surprised are not large percentages for the most part. Analysts seem to be surprised low and high an even number of times. The largest positive surprise was the EPS in September 2011 of 2.75% and the largest negative surprise was revenue in the most recent quarter, which was 1.62% lower than expected. Analysts believe EPS could be even better than it is because Northern Trust does not buy back its shares often enough. Increased buyback activity would be beneficial to the company as a whole. Low operating costs helped the most recent EPS beat estimates. Copy/paste the Consensus Estimates Analysis Table from Reuters.com, Analysts tab (include both revenue and earnings) 11
Review the range and the consensus of analysts estimates. (1) Calculate the % difference of the high estimate from the consensus (mean); (2) Calculate the % (negative) difference of the low estimate from the consensus; (3) Are the divergent more notable for the current or outquarter, FY1 or FY2, revenue or earnings? (4) Note the number of analysts providing LT growth rate estimate. It that roughly the same as the number of analysts providing revenue and earnings estimates? Sales Computations High Difference Low Difference Quarter Ending Dec 12 5.57% 1.95% Quarter Ending Mar 13 4.22% 2.43% Year Ending Dec 12 2.78% 1.06% Year Ending Dec 13 4.83% 3.88% Earnings (per share) Quarter Ending Dec 12 9.21% 6.58% Quarter Ending Mar 13 7.79% 11.69% 12
Year Ending Dec 12 3.79% 1.38% Year Ending Dec 13 5.11% 5.41% Long Term Growth Rate % 19.05% 11.11% These percentages represent the difference between mean and the highest and lowest analyst estimates. Generally, the extreme differences seem to occur on the high side. In addition, the more extreme differences seem to occur out a quarter. This is likely because of uncertainty within the industry. With Dodd Frank continuing to add new rules and regulations analysts are most likely not as comfortable predicting in advance. The long term growth rate predictions are some of the most extreme outliers at 19.05% in the positive direction and 11.11% in the negative direction. The most likely reason for this is that only 3 analysts predicted the long term growth rate. If one analyst predicted a lot different than the others the results are skewed. At least 8 analysts predicted each other value. Copy/paste the Consensus Estimates Trend Table from Reuters.com, Analysts tab (include both revenue and earnings) 13
Review recent trend of analysts consensus (mean) estimates on revenue and earnings. (1) Are the consensus estimates trending up, down, or stay the same? (2) Is the trend more notable for the near or out quarter, FY1 or FY2, revenue or earnings? Consensus estimates trends seem to be trending downward. A year ago revenues were predicted to be 1,026.94 (in millions) and now it has dropped to 995.48 (in millions). This is true for both Sales and EPS. Recently, revenue predictions for 2 quarters out have risen, but the year as a whole has still gone down. The trend is actually more noticeable when comparing out a quarter than out a year from now. This is most likely due to major macro economic events coming up in the near future such as the fiscal cliff. Overall, the downward trend is apparent for the company as a whole. Copy/paste the Estimates Revisions Summary Table from Reuters.com, Analysts tab (include both revenue and earnings) 14
Review the number of analysts revising up or down their estimates (both revenue and earnings) in the last and last four weeks. (1) Note whether there are more up or down revisions; (2) are the revisions predominantly one directional? (3) Any notable difference last week versus last four weeks, revenue versus earnings? Over the last month earnings predictions have been mostly revised downward. In the last week all revisions have been revised downward. Last week only a few analysts looked at Northern Trust so it is hard to see the difference in consensus over the last week compared to the last month. Northern Trust has not had an earnings announcement for awhile so that could be the reason for so few revisions. 15
You will need to incorporate what you see here with Morningstar s analyst research report (you can access Morningstar Direct at the Financial Markets Lab.) and other readings/analysis you found from various on line financial sites. Discuss whether you think the company has a good chance of making or beating analyst consensus estimate, and why. Based on how the stock has been trading lately, do you think market has already anticipated strong or lackluster financial outlook from the company? I do believe that Northern Trust has the ability to beat estimates but from my research I do not believe they will this time. One good aspect of Northern Trust is there steady and affluent clientele. According to Morningstar direct they serve about 24% of the richest families profiled in Forbes 400. This helps them maintain a steady income that helps them prevent very bad quarters. In addition, they have a strong foot internationally and are looking to expand in this regard. If they are able to build relationships with newly rich clients, they will continue to ensure steadiness over time. Even with these reasons I do not believe Northern Trust will beat estimates for these reasons. First, the company operates very conservatively, which will not help them earn a lot as the economy moves towards recession. Historically they pay good dividends so that money is not being invested in the company. In addition, they maintain a very high common equity ratio of 13%. This high ratio shows that the firm has too much capital and it could be used more efficiently. Second, the stock price is very inflated right now so market sentiment is good, however, with uncertain times ahead earnings will likely drop for Northern Trust. Finally, Northern Trust will be affected by the new regulations imposed by regulators. The Volcker Rule will cut into their profits, and cause investors to not be as happy. Since Northern Trust will not be able to invest as heavily their profits will likely drop. Northern Trust has been a good company, although I do not see it making estimates in the short term so it would not be a good buy for the Cougar Fund. 16
Section (F) Analysts Recommendations Copy/paste the Analyst Recommendations and Revisions Table from Reuters.com, Analysts tab. NOTE: Make sure you copy the entire table including the Mean Rating at the bottom of the table. Review the trend of analyst recommendations over the last three months. Is there a notable change of analyst opinions, turning more bullish or bearish? How many different ratings out of the five possible ones did the company receive currently, one, two, and three months ago? Is there a notable trend of opinion convergence or divergence? Is what you see here consistent to comments in Morningstar analyst s research report as well as various online financial sites you had researched on? NOTE: On a Five point scale, Reuters assigns 1 to Buy, the most bullish recommendation, and 5 to Sell, the most bearish recommendation. Some other online sites have opposite scale, with their 1 being the most bearish and 5 being the most bullish recommendations. 17
Currently, Northern Trust Corp has 1 recommendation to buy (1), three recommendations to outperform (2), 15 recommendations to hold (3), and two recommendations to sell (4). Over the past three months, Northern Trust has remained mostly bearish with a current mean rating of 2.75. Since three months ago, the mean rating went up a tiny bit but then came back down. Most of the analysts recommend a hold. This is consistent with my research because it indicates that Northern Trust is a solid company, but maybe not a strong investment at the moment. Analyst ratings also tend to be more bullish because they need investments to make money. For this reason I believe the stock is even more bearish than Reuters has let on. 18
Section (G) Institutional Ownership Copy/paste the completed CIF Institutional Ownership spreadsheet here. Combine information provided in all three sections to discuss whether (1) institutions, on net basis, have been increasing or decreasing ownership and how significant, (2) the stock has sizable institution interests and support, (3) the extent of the (> 5%) owners, and (4) this could be a bullish or bearish indication of future stock price movement. Institutional ownership makes a large part of Northern Trust, however, lately more institutions have decreased their positions. At the moment there are 49 new positions and 27 closed 19
positions, which puts the total at 605. In total institutions own 82.21% of the company and the top 10 percent own 39.30%, which is very significant. This makes it so the company must be careful to make sure that 10% is always happy or they may lose a lot of investment. T. Row Price Associates Inc is the largest institutional owner with 9.2% holdings. Even though they are the only 5% single holder of the company this is very significant. With 199 increased positions and 267 decreased positions this is a sign that investors are a little bit bearish on the stock at the moment. 20
Section (H) Short Interest (two pages) From http://www.nasdaq.com/ (NASDAQ s website) Copy/paste or enter the data in the following table. You also need to copy/paste the chart to the right. Copy/paste or type the information from short interest table. You will start from the most recent release date, and go back for a year (some stocks may not have data go back for a year) Settlement Date Short Interest Avg Daily Share Volume Days To Cover 11/15/2012 5,755,921 1,045,490 5.505477 10/31/2012 5,261,725 1,380,220 3.812236 10/15/2012 5,297,300 1,082,574 4.893245 9/28/2012 5,146,163 1,569,138 3.279611 9/14/2012 6,404,186 1,356,936 4.719593 8/31/2012 6,657,150 908,106 7.330807 8/15/2012 6,116,680 887,396 6.892842 7/31/2012 5,854,337 1,251,065 4.679483 7/13/2012 6,563,992 1,354,247 4.846968 6/29/2012 5,929,878 1,156,744 5.126353 6/15/2012 6,330,895 1,408,367 4.495203 5/31/2012 5,969,888 1,388,431 4.299737 5/15/2012 4,230,533 1,269,067 3.333577 4/30/2012 3,988,304 1,236,157 3.226373 4/13/2012 4,329,972 1,117,635 3.874227 21
3/30/2012 4,449,205 1,440,668 3.088293 3/15/2012 4,334,983 1,502,296 2.885572 2/29/2012 4,152,345 1,009,379 4.113762 2/15/2012 4,274,104 1,456,051 2.935408 1/31/2012 4,706,485 2,046,282 2.300018 1/13/2012 4,056,076 1,231,568 3.293424 12/30/2011 3,757,576 1,492,976 2.516836 12/15/2011 3,902,200 2,469,956 1.579866 11/30/2011 4,134,787 2,015,479 2.051516 11/15/2011 4,542,047 1,802,977 2.519193 Read more: http://www.nasdaq.com/symbol/ntrs/short interest#ixzz2diuchr7o Copy/paste the chart to the right of the short interest table, immediately follow the table below 22
NOTE: You are encouraged to look at the short interest information for two of the companies closest competitors. This will help gauge whether the sentiment indicated in the short interest statistics is company specific or industry wide. Settlement Date Short Interest Average Daily Shares Volume # of Days to cover 23
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From http://finance.yahoo.com/ Complete the following table with information from the share statistics table. Avg Vol Avg Vol Shares (3 month) (10 day) Outstanding Float 1,215,600 967,114 239.80 Million 231.23 Million Shares Short Short Ratio Short % of Float Shares Short (Most recent date) (Most recent date) (Most recent date) (2 weeks prior) 5.76 Million 4.90 2.70% 5.26 Million Based on the short interest statistics and its recent trend, how is the market sentiment on the stock? Has the sentiment turned more bullish or bearish over the last year? How about in more recent month and why? As of late short interest ratio is at 4.90 and days to cover is hovering around 5.50. In August it peaked around 7.33. For a while days to cover steadily rose until August when it started to go down, but lately it is back up again. The stock price of Northern Trust is very near its 52 week high, so this could be a reason for the days to cover and short ratio being up. With a higher short ratio and days to cover, investor s sentiment is bearish. They are trying to make money by predicting that the stock price will go down. Another concern for the Cougar Fund is the volatility of short interest and days to cover. Lately, days to cover has been up and down, not really following a specific pattern. We must be weary of this as investors. One of its closest competitors State Street Corp has days to cover of 1.86 at the moment. This indicates that investors feel like State Street Corp has more potential for growth in the near future. They are predicting a rise in the stock price of STT. Overall, the short interest has a bearish sentiment for Northern trust. 25
Section (I) Stock Charts A three months price chart Copy/paste the 3 Mos. stock chart here A one year price chart Copy/paste the 1 Yr stock chart here A five year price chart Copy/paste the 5 Yrs. stock chart here 26
Additional price chart If you have other stock charts, feel free to copy/paste here Discuss what you observe from the stock charts. This should include comparing your stock to competitors, sector, and SP500 over the three different time horizons. The charts above compare Northern Trust Corporation s stock price to its closest competitors over differing time horizons. Interestingly, the 5 year price chart shows a general downtrend with a slight uptrend in the last year. The main reason it dropped was likely the financial crisis in 2008 2009. Since the crisis it has been fairly flat with a small rise over the last year. This flatter graph is consistent with the lower beta of 0.91. Over the past three months the company has outperformed the S&P 500 but not State Street Corp or Bank of New York Mellon Corp. In the past year it has mostly outperformed all three. Financials have been very successful lately so we should see solid price charts in the weeks to come, however, uncertainty in the market could make for drops in price down the road. Sources: 27
http://www.reuters.com/finance/stocks/companynews?symbol=ntrs.o http://www.investopedia.com/terms/f/forwardpe.asp#axzz2dwzcn0zm http://www.northerntrust.com/pointofview/2012_issue_2/regulatory changes.html http://www.northerntrust.com/about us/history culture http://www.morningstar.com/earnings/earnings calltranscript.aspx?region=usa&t=ntrs&pindex=4 http://finance.mapsofworld.com/finance theory/financial services company/custodianbank.html http://www.federalreserve.gov/releases/h15/update/default.htm http://investing.money.msn.com/investments/stock price?symbol=ntrs&ocid=qbes http://finance.yahoo.com/q/in?s=stt+industry http://www.statestreet.com/wps/portal/internet/corporate/home/aboutstatestreet/corporate overview/technology/!ut/p/c4/04_sb8k8xllm9msszpy8xbz9cp0os3i_0cadcyddrwolahcda0 9vCwM300A3YwMDA_3g1Lz40GD9gmxHRQAMW_rC/ http://www.nasdaq.com/symbol/stt/short interest http://professional.wsj.com/article/sb10000872396390444897304578046353273283108.html?mg=reno wsj 28