The Bank of New York Mellon Corporation’s ( BK Quick Quote BK - Free Report) global diversification efforts and prudent cost-control initiatives are expected to keep supporting profitability. Its robust assets under management balance will likely aid revenue growth in the quarters ahead. However, because of relatively lower interest rates, the company’s margins might remain under pressure in the near term. Also, concentration risk arising from significant dependence on fee-based revenues is concerning. Analysts also do not seem optimistic regarding BK’s earnings growth potential. Over the past 30 days, the Zacks Consensus Estimate for BNY Mellon’s current-year earnings has been revised 1.8% lower. Thus, the company currently carries a Zacks Rank #3 (Hold). In the past year, shares of the company have lost 11.1% compared with a decline of 15% recorded by the industry.
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Looking at its fundamentals, BNY Mellon’s non-interest expenses have witnessed a negative compound annual growth rate (CAGR) of 0.8% over the past eight years (2014-2021), driven by cost-saving efforts. While expenses increased in first-quarter 2022, overall costs are expected to remain manageable in the upcoming quarters as the company continues to eliminate unnecessary management layers and automates processes.
Also, BNY Mellon’s balance sheet remains solid. Its decent earnings strength and robust liquidity position indicate that it will be able to continue meeting debt obligations in the near term, even if the economic situation worsens. Following the clearance of the 2021 stress test, the company authorized the buyback of up to $6 billion worth of shares through the fourth quarter of 2022 and announced a dividend hike of 9.7%. As of Mar 31, 2022, $2.7 billion worth of shares were left to be repurchased. Driven by a strong capital position, BNY Mellon is expected to sustain efficient capital deployment activities, thus enhancing shareholder value. However, because of the near-zero interest rate environment, BNY Mellon witnessed a volatile trend in its net interest margin (NIM) in the past several quarters. While the company’s net interest revenues (NIR) witnessed an increase in first-quarter 2022, the same has been declining before that, seeing a negative CAGR of 10.2% over the four-year period ended 2021. Despite the rate hikes in March and May, along with expectations of several more this year, BNY Mellon’s NIM and NIR are expected to be under pressure in the near term due to relatively lower rates. The company’s largest source of revenues is fee income, which constituted more than 80% of total revenues at the end of the first quarter of 2022. Concentration risk emanating from higher dependence on fee-based revenues could significantly alter the company’s financial position if there is any change in individual investment preferences, regulatory amendments, or a slowdown in capital market activities. Stocks Worth Considering
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Gladstone Capital Corporation ( GLAD Quick Quote GLAD - Free Report) and Main Street Capital Corporation ( MAIN Quick Quote MAIN - Free Report) . GLAD currently sports a Zacks Rank #1 (Strong Buy), while MAIN carries a Zacks Rank #2 (Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here The consensus estimate for Gladstone Capital’s current fiscal year’s earnings has been revised 8.1% upward over the past 60 days. Over the past year, GLAD’s share price has increased 0.6%. Main Street Capital’s current-year earnings estimates have been revised 1.4% upward over the past 60 days. MAIN’s shares have lost 7.5% over the past year.