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BNY Mellon Stock Touches All-Time High: Should You Still Invest?
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The Bank of New York Mellon Corporation (BK - Free Report) stock, popularly known as BNY Mellon, has performed remarkably well so far this year. The stock touched its all-time high of $67.74 during Wednesday’s trading session to finally close at $67, soaring 28.7% year to date.
The BK stock has also outperformed its industry, the S&P 500 Index and its close peers —Citigroup (C - Free Report) , State Street (STT - Free Report) and PNC Financial Services (PNC - Free Report) — so far this year.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Fed’s Rate Cut Signal Acts as Driving Force for BK Stock
The recent increase in BNY Mellon’s share price can be attributed to the statement by the Federal Reserve chairman, Jerome Powell, which indicates that the central bank is ready to cut interest rates starting next month.
At the Kansas City Fed's annual economic symposium in Jackson Hole on Friday, Powell stated, “The time has come for policy to adjust.” The Fed kept its influential lending rate at its highest level of 5.25-5.50% since 2001 to tame inflation, which has been gradually cooling down.
Thus, Powell said that the central bank has “ample room” to maneuver as policy enters its next phase. He stressed that the timing and speed of reduction would “depend on incoming data,” but markets rapidly moved to price in four rate cuts of 25 basis points each by the end of 2024.
The rate cut signal is a positive development for banks, including BNY Mellon, which has been reeling under increasing funding cost pressure. While higher rates have led to a significant jump in banks’ net interest income (NII), the same has increased funding costs, which squeezed margins.
BK’s NII has seen a five-year (2018-2023) compound annual growth rate of 3.8%. Despite higher rates, the company’s NII declined in the first half of 2024 due to higher funding costs.
Thus, as the Fed begins to cut rates, funding costs will gradually stabilize, supporting BNY Mellon’s NII. Also, lower interest rates are expected to encourage consumers and businesses to borrow. Increased loan activity can result in larger profitability for BK as the bank will be able to earn more interest on loans.
Other Factors Providing Impetus to BNY Mellon Stock
BNY Mellon’s growth initiatives are impressive. The company has been trying to launch several services, digitize operations and make strategic buyouts. Also, it has been strengthening its foothold in foreign markets.
In 2021, BK, through its subsidiary, acquired Optimal Asset Management. The long-term growth prospects of the industry are encouraging, given the huge growth potential of overseas securities markets and a rise in complex new securities. In the first half of 2024, non-U.S. revenues constituted 35% of BNY Mellon’s total revenues.
BK’s international revenues are expected to continue improving as the demand for personalized services rises globally. Its deal to divest BNY Trust Company of Canada to Computershare aligns with its strategic focus to gain a foothold in foreign markets outside Canada. In 2022, BK divested BNY Alcentra Group Holdings, Inc. to Franklin Resources.
BNY Mellon has a solid balance sheet. As of Jun 30, 2024, the company had total debt of $50.3 billion, and cash and due from banks and interest-bearing deposits of $121.5 billion. It maintains investment-grade long-term senior debt ratings of A1, A and AA- from Moody’s, S&P Ratings and Fitch Ratings, respectively, which render it favorable access to the debt markets. Given its earnings strength, BNY Mellon is expected to be able to continue to meet debt obligations in the near term, even if the economic situation worsens.
BNY Mellon is expected to keep enhancing shareholder value through efficient capital distributions. After the clearance of the 2024 stress test, the company hiked its quarterly cash dividend by 12% to 47 cents per share. In the last five years, the company increased its dividend four times. It has an annualized dividend growth rate of 7.84%, with a payout ratio of 31%.
Similar to BK, PNC Financial, State Street and Citigroup hiked quarterly dividends by 3.2%, 10% and 6%, respectively, as they cleared this year’s stress test.
In April 2024, BK announced a new share repurchase program worth $6 billion, which will be effective once the prior buyback plan is fully utilized. The company expects to return 100% or more of its earnings to shareholders in 2024 after having returned 123% last year.
Does BK Stock Have More Room to Run?
The surge in BNY Mellon’s stock price has left many investors contemplating whether they have missed an investment opportunity or still have some time to take a position.
Despite the recent rally in BK shares, it is currently trading at a discount with forward 12-month earnings multiple of 11.10X compared with the industry’s 11.73X. This indicates that BK is slightly undervalued right now compared with the industry.
Price-to-Earnings F12M
Image Source: Zacks Investment Research
Moreover, analysts seem to be bullish about BNY Mellon’s earnings growth prospects. Over the past 30 days, the Zacks Consensus Estimate for the company’s 2024 and 2025 earnings has moved upward.
Estimate Revision Trend
Image Source: Zacks Investment Research
Given the company’s fundamental strength, the Fed’s rate cut decision, along with positive earnings estimate revisions, the BK stock is an attractive investment option now, despite it touching an all-time high.
Image: Shutterstock
BNY Mellon Stock Touches All-Time High: Should You Still Invest?
The Bank of New York Mellon Corporation (BK - Free Report) stock, popularly known as BNY Mellon, has performed remarkably well so far this year. The stock touched its all-time high of $67.74 during Wednesday’s trading session to finally close at $67, soaring 28.7% year to date.
The BK stock has also outperformed its industry, the S&P 500 Index and its close peers —Citigroup (C - Free Report) , State Street (STT - Free Report) and PNC Financial Services (PNC - Free Report) — so far this year.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Fed’s Rate Cut Signal Acts as Driving Force for BK Stock
The recent increase in BNY Mellon’s share price can be attributed to the statement by the Federal Reserve chairman, Jerome Powell, which indicates that the central bank is ready to cut interest rates starting next month.
At the Kansas City Fed's annual economic symposium in Jackson Hole on Friday, Powell stated, “The time has come for policy to adjust.” The Fed kept its influential lending rate at its highest level of 5.25-5.50% since 2001 to tame inflation, which has been gradually cooling down.
Thus, Powell said that the central bank has “ample room” to maneuver as policy enters its next phase. He stressed that the timing and speed of reduction would “depend on incoming data,” but markets rapidly moved to price in four rate cuts of 25 basis points each by the end of 2024.
The rate cut signal is a positive development for banks, including BNY Mellon, which has been reeling under increasing funding cost pressure. While higher rates have led to a significant jump in banks’ net interest income (NII), the same has increased funding costs, which squeezed margins.
BK’s NII has seen a five-year (2018-2023) compound annual growth rate of 3.8%. Despite higher rates, the company’s NII declined in the first half of 2024 due to higher funding costs.
Thus, as the Fed begins to cut rates, funding costs will gradually stabilize, supporting BNY Mellon’s NII. Also, lower interest rates are expected to encourage consumers and businesses to borrow. Increased loan activity can result in larger profitability for BK as the bank will be able to earn more interest on loans.
Other Factors Providing Impetus to BNY Mellon Stock
BNY Mellon’s growth initiatives are impressive. The company has been trying to launch several services, digitize operations and make strategic buyouts. Also, it has been strengthening its foothold in foreign markets.
In 2021, BK, through its subsidiary, acquired Optimal Asset Management. The long-term growth prospects of the industry are encouraging, given the huge growth potential of overseas securities markets and a rise in complex new securities. In the first half of 2024, non-U.S. revenues constituted 35% of BNY Mellon’s total revenues.
BK’s international revenues are expected to continue improving as the demand for personalized services rises globally. Its deal to divest BNY Trust Company of Canada to Computershare aligns with its strategic focus to gain a foothold in foreign markets outside Canada. In 2022, BK divested BNY Alcentra Group Holdings, Inc. to Franklin Resources.
BNY Mellon has a solid balance sheet. As of Jun 30, 2024, the company had total debt of $50.3 billion, and cash and due from banks and interest-bearing deposits of $121.5 billion. It maintains investment-grade long-term senior debt ratings of A1, A and AA- from Moody’s, S&P Ratings and Fitch Ratings, respectively, which render it favorable access to the debt markets. Given its earnings strength, BNY Mellon is expected to be able to continue to meet debt obligations in the near term, even if the economic situation worsens.
BNY Mellon is expected to keep enhancing shareholder value through efficient capital distributions. After the clearance of the 2024 stress test, the company hiked its quarterly cash dividend by 12% to 47 cents per share. In the last five years, the company increased its dividend four times. It has an annualized dividend growth rate of 7.84%, with a payout ratio of 31%.
Similar to BK, PNC Financial, State Street and Citigroup hiked quarterly dividends by 3.2%, 10% and 6%, respectively, as they cleared this year’s stress test.
In April 2024, BK announced a new share repurchase program worth $6 billion, which will be effective once the prior buyback plan is fully utilized. The company expects to return 100% or more of its earnings to shareholders in 2024 after having returned 123% last year.
Does BK Stock Have More Room to Run?
The surge in BNY Mellon’s stock price has left many investors contemplating whether they have missed an investment opportunity or still have some time to take a position.
Despite the recent rally in BK shares, it is currently trading at a discount with forward 12-month earnings multiple of 11.10X compared with the industry’s 11.73X. This indicates that BK is slightly undervalued right now compared with the industry.
Price-to-Earnings F12M
Image Source: Zacks Investment Research
Moreover, analysts seem to be bullish about BNY Mellon’s earnings growth prospects. Over the past 30 days, the Zacks Consensus Estimate for the company’s 2024 and 2025 earnings has moved upward.
Estimate Revision Trend
Image Source: Zacks Investment Research
Given the company’s fundamental strength, the Fed’s rate cut decision, along with positive earnings estimate revisions, the BK stock is an attractive investment option now, despite it touching an all-time high.
BNY Mellon currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.