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Why is an Earnings Beat Less Likely for BNY Mellon (BK) in Q4?

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The Bank of New York Mellon Corporation (BK - Free Report) is scheduled to report fourth-quarter and 2021 results on Jan 18, before market open. Its revenues and earnings in the to-be-reported quarter are expected to have witnessed a rise on a year-over-year basis.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results were aided by provision benefits and higher fee income. Growth in the assets under management (AUM) balance was another tailwind.

BNY Mellon has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with a surprise of 6.9%, on average.

The Zacks Consensus Estimate for the company’s fourth-quarter earnings is pegged at $1.02, which has increased 1% over the past 30 days. The estimate indicates a rise of 6.3% from the year-ago quarter’s reported number.

The consensus estimate for sales is pegged at $3.98 billion, indicating a 3.5% rise from the prior-year quarter’s reported figure.

Key Factors & Estimates for Q4

Fee Revenues: Supported by overall asset inflows in the fourth quarter, BNY Mellon is expected to have recorded an improvement in total AUM balance. Thus, the related fee is likely to have increased in the quarter.

The Zacks Consensus Estimate for asset servicing fees is pegged at $1.24 billion, suggesting growth of 1.2% from the previous quarter’s reported number.

However, the Zacks Consensus Estimate for total investment services fee (comprising more than 50% of the company’s total revenues) is pegged at $2.06 billion, which indicates a decline of 1.6% from the previous quarter’s reported number.

The consensus mark for financing-related fees is pegged at $48.50 million, which suggests a 1% rise sequentially. The consensus estimate for distribution and servicing fees is pegged at $29.50 million, indicating 5.4% growth from the previous quarter’s reported figure.

The consensus estimate for foreign exchange revenues is pegged at $187 million, suggesting a rise of 1.1% sequentially. Nonetheless, the consensus mark for investment and other income of $60 million suggests a sequential decline of 52.8%.

Thus, the consensus estimate for total fees and other revenues is pegged at $3.31 billion, suggesting a 2.5% decline sequentially.

Net Interest Revenues (NIR): The overall lending scenario improved in the fourth quarter. Thus, despite the continued low interest-rate environment, BNY Mellon’s interest income is expected to have been positively impacted by growth in loan balances. The consensus mark for NIR for the fourth quarter is pegged at $646 million, indicating marginal sequential growth.

Management projects 2021 NIR to decline 14%.

The company expects fourth-quarter 2021 fee waivers (net of distribution and servicing expenses) to be stable on a sequential basis.

Expenses: Because of higher litigation and restructuring charges, BNY Mellon’s expenses have been elevated over the past few years. Nevertheless, overall costs are expected to have been manageable in the quarter under review, given the elimination of unnecessary management layers.

What the Zacks Model Unveils

According to our quantitative model, the chances of BNY Mellon beating the Zacks Consensus Estimate this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — which is required to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for BNY Mellon is -0.32%.

Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).

Stocks That Warrant a Look

A few finance stocks, which you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases per our model, are Commerce Bancshares, Inc. (CBSH - Free Report) , BankUnited, Inc. (BKU - Free Report) and Ally Financial Inc. (ALLY - Free Report) .

The Earnings ESP for Commerce Bancshares is +1.24% and it carries a Zacks Rank of 3 at present. CBSH is scheduled to report quarterly numbers on Jan 19.

BankUnited is slated to report quarterly results on Jan 20. BKU currently has an Earnings ESP of +42.98% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ally Financial is slated to report quarterly earnings on Jan 21. ALLY, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +4.87%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.