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Can Modest Asset Growth Aid BNY Mellon (BK) in Q3 Earnings?

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The Bank of New York Mellon Corporation (BK - Free Report) is scheduled to report third-quarter 2019 results on Oct 16, before the market opens. While its revenues in the third quarter are expected to have improved year over year, earnings are likely to have witnessed a decline.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from a decline in expenses along with growth in assets under management (AUM). However, a decline in revenues was a headwind.

BNY Mellon has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters. The average positive surprise was 3.7%.

However, activities of the company in the third quarter were not adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of 99 cents has remained unchanged over the past 30 days. Moreover, it indicates a decline of 6.6% from the year-ago reported number.

The Zacks Consensus Estimate for sales for the to-be-reported quarter is pegged at $4.09 billion, indicating marginal growth from the previous-year quarter’s reported figure.

Looking at BNY Mellon’s price performance, its shares have lost 6.3% so far this year against 16.2% growth recorded by the industry it belongs to.

Will the price performance improve post third-quarter earnings? To a great extent, it depends on whether the company will be able to beat earnings estimates this time around.

Before we take a look at what our quantitative model predicts, let’s check the factors that are likely to have impacted third-quarter results.

Factors to Influence Q3 Results

The Zacks Consensus Estimate for AUM for the third quarter is pegged at $1.85 trillion, which indicates marginal growth from the previous quarter’s reported figure. Further, the consensus estimate for total assets under custody and administration of $35.81 trillion suggests growth of nearly 1% from the prior quarter’s reported figure. Thus, driven by expected growth in assets, investment management and performance fee are likely to have been positively impacted in the third quarter.

The consensus estimate for total investment services fee indicates that this component is also likely to have increased in the quarter. The consensus estimate for the same is pegged at $2 billion, which suggests growth of 1% from the previous quarter’s reported number.

Thus, supported by marginal growth in the two most important components of fee revenues, total fee revenues are likely to have increased modestly in the third quarter. The consensus estimate for fee revenues for the third quarter is pegged at $3.12 billion, suggesting marginal growth from the prior quarter’s reported figure.

However, the lending scenario was not that great in the third quarter. Thus, dismal loan growth along with the decline in interest rates (two rate cuts in July and September) and the flattening of the yield curve is likely to have hurt BNY Mellon’s net interest revenue (NIR) growth.

Notably, management expects NIR in the third quarter to decline nearly 5% sequentially. This is based on expectations of a decrease in the yield on the securities portfolio and relatively flat interest-bearing deposit balances.

Because of higher litigation and restructuring charges, the company’s expenses have remained elevated over the past few years. While BNY Mellon continues investing in technology, overall costs are expected to have remained manageable in the third quarter, given the elimination of unnecessary management layers.

Now, let’s take a look at what our quantitative model predicts.

According to our quantitative model, chances of BNY Mellon beating the Zacks Consensus Estimate in the third quarter are high. This is because it has 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’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for BNY Mellon is +0.11%.

Zacks Rank: BNY Mellon currently carries a Zacks Rank #3.

Other Stocks That Warrant a Look

Here are some other finance stocks that you may want to consider as these also have the right combination of elements to post an earnings beat this quarter, per our model.

Sallie Mae (SLM - Free Report) has an Earnings ESP of +24.09% and sports a Zacks Rank #1 (Strong Buy) at present. The company is slated to release results on Oct 23.

Federated Investors, Inc (FII - Free Report) is slated to release results on Oct 24. It currently has an Earnings ESP of +0.76% and a Zacks Rank #3.

T. Rowe Price Group, Inc (TROW - Free Report) is also expected to release results on Oct 24. It presently has an Earnings ESP of +0.11% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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