Today’s Investment Observation is Northern Trust (NTRS). Although Northern Trust has not increased the dividend in the last couple of years, the company has an exceptional dividend history given the turmoil that has transpired in the financial services industry for the last 3 years. According to Value Line Investment Survey, “Northern Trust is a leading provider of investment management, asset and fund administration, fiduciary and banking solutions for institutions and affluent individuals worldwide.”
Based on Value Line’s June 18, 2010 issue, Northern Trust (NTRS) has a fair value of $63. The stock has had an increase in the number of shares outstanding by 7% since 1999. However, the book value for NTRS has increased by slightly less than 3 times (286%) since 1999. Although Value Line has NTRS with a timeliness rating at the lowest end of the scale, NTRS is expected to increase in value to $70 by 2013, which is an annualized total return of 11%.
According to Dow Theory, Northern Trust (NTRS) has the following downside targets:
At the current price, the worst-case scenario of NTRS falling to $33.20 is 27.17%. In our investment strategy, declines of 25% would initiate the second of 3 purchases for either short-term speculators or long-term investors. The upside targets for this stock are:
- $58.58 (fair value)
Edson Gould’s Altimeter indicates that while Northern Trust (NTRS) isn’t at the all time low, it may be forming a base in the stock’s price. At the current price of $41.47, NTRS hit a critical base (blue line) in March 2003 and December 2008. The short-term upside target is $62 as represented by the blue circle. The $62 mark coincides with Value Line’s $63 fair value price and Dow Theory’s fair value of $58.58. The most optimistic outlook for NTRS is for the stock price to rise to $83.85 as indicated by the green circle.
As a sidebar, if NTRS were to rise as high as the September 2000 peak the stock would be priced at $156. However, we cannot, at this time, take the position that NTRS would rise to such a level of overvaluation unless and until the stock exceeds the $83.85 level.
Our worst-case scenario is that NTRS declines to the $28 level as represented by the red circle. We are adamantly against investors ruling out the prospect of losing at least 50% of their position. For this reason, NTRS falling to $28 is just as real in our minds as the prospect of rising to the $62 level.
As a potential sign of things to come, it was announced on Tuesday August 31, 2010 that Northern Trust was granted a Beijing branch license. Although the prospects of China have been a topic of much debate since Columbus tried to do an end run around Marco Polo’s silk road, we believe that Northern Trust is methodically positioning itself to reap rewards regardless of the rumors of China’s opportunities.
Disclosure: No positions
Disclosure: No positions