On Sep 28, 2016, we issued an updated research report on The Bank of New York Mellon Corporation (BK - Analyst Report) . We believe that the company’s consistent efforts to expand its global reach through strategic acquisitions will bolster its top-line growth. Further, the bank’s impressive capital deployment activities makes it shareholder friendly. However, higher costs stemming from legal and regulatory norms, along with strained margin, remain headwinds for BNY Mellon’s near-term profitability.
BNY Mellon remains focused on fortifying its global footprint via acquisitions and investment in lucrative businesses. In Apr 2016, the banking giant acquired Atherton Lane Advisers to expand its presence in Northern California, one of the fastest-growing wealth management markets.
Notably, during the first half of 2016, the company reaped 34% of its total revenue from international markets. With healthy liquidity position and growth potential of overseas markets, BNY Mellon is poised for increased revenue and cross-selling opportunities.
BNY Mellon continues to attract shareholders’ confidence with its steady capital deployment activities. Notably, in Jul 2016, the company increased its quarterly common stock dividend by 12% to 19 cents per share.
Although the company’s cost-cutting initiatives improved the bottom line during first-half 2016, costs stemming from raised regulations in financial markets are likely to hurt its profitability. Further, management expects to incur higher business development and marketing expenses, owing to impact of seasonality in the fourth quarter.
The company’s huge dependence on fee-based revenues could adversely affect its financial position. During the first half of 2016, 79% of its total revenue resulted from fee income. Further, management expects third-quarter 2016 revenues to be hurt by a seasonal slowdown in transaction volumes and market-related revenues.
Also, BNY Mellon, like many other financial services company, faces margin pressure owing to the low interest rate environment.
BNY Mellon’s stock has declined around 3% year to date (YTD).
BANK OF NY MELL Price
Over the last 30 days, the Zacks Consensus Estimate for the current quarter and current year has remained stable at 80 cents per share and $3.02 per share, respectively. Notably, the company has positive record of earnings surprises in recent quarters.
Currently BNY carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the same space include:
Republic Bancorp Inc. (RBCAA - Snapshot Report) , sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate over the last 60 days for the current year has been revised upward from $1.84 per share to $2.04 per share. You can see the complete list of today’s Zacks #1 Rank stocks here.
Comerica Incorporated (CMA - Analyst Report) and State Street Corporation (STT - Analyst Report) carry a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Comerica Incorporated for the current year has been revised upward from $2.67 a share to $2.72 per share over the last 60 days. For State Street Corporation, the Zacks Consensus Estimate has moved up from $4.92 a share to $5.03 per share for the current year, over the same time frame.
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