Prudential Cuts State Street to Underweight

Analyst Michael Mayo says the financial-services firm expects tougher revenue conditions going forward

Prudential downgraded State Street (STT ) to underweight from neutral.

Analyst Michael Mayo says second-quarter EPS was below consensus, excluding $16 million in securities gains. Also, operating leverage appears negative this quarter, Mayo says. He adds that management expects tougher revenue conditions going forward, partially as a result of higher interest rates, and also expects seasonally lower revenues in the third quarter.

Mayo says management indicated that it will have higher implementation costs due to new business wins and implementation in Europe. He cut the 2004 EPS estimate by 5 cents, to $2.65, cut the 2005 estimate by 10 cents to $2.95, and trimmed the price target to $43, from $48.

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