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BNY Mellon (BK) Up 3.7% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for The Bank of New York Mellon Corporation (BK - Free Report) . Shares have added about 3.7% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is BK due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
BNY Mellon's Q1 Earnings Beat Estimates, Expenses Up
BNY Mellon’s first-quarter 2018 earnings per share of $1.10 surpassed the Zacks Consensus Estimate of 97 cents. Also, the figure reflects an improvement of 32.5% from the prior-year quarter.
Results benefited from an improvement in revenues along with provision benefits. Also, assets under management (AUM) reflected growth. However, rise in expenses acted as a headwind.
Net income applicable to common shareholders for the quarter was $1.14 billion, up from $880 million recorded in the prior-year quarter.
Revenues Improve, Costs Rise
Total revenues (GAAP basis) for the quarter increased 9.9% year over year to $4.19 billion. Also, the figure surpassed the Zacks Consensus Estimate of $4.05 billion.
Net interest revenues, on a fully taxable-equivalent basis, were $925 million, up 15% year over year. The rise was driven by higher interest rates and deposits, partly offset by rise in average long-term debt.
Also, net interest margin increased 9 basis points (bps) year over year to 1.23%.
Total fee and other revenues increased 8.3% from the prior-year quarter to $3.27 billion. The rise was driven by an increase in investment services fees, investment management and performance fees, foreign exchange and other trading revenues, and investment and other income.
Total non-interest expenses were $2.74 billion, increasing 3.7% year over year. This reflects an increase in all expense components, except professional, legal and other purchased services costs, bank assessment charges and amortization of intangible assets.
Strong Asset Position
As of Mar 31, 2018, AUM was $1.9 trillion, up nearly 8% year over year. This reflected higher market values, net inflows and the favorable impact of a weaker U.S. dollar (principally versus the British pound), partly offset by the sale of CenterSquare Investment Management and some other changes.
Moreover, assets under custody and administration of $33.5 trillion were up 9% year over year. Higher market values, the favorable impact of a weaker U.S. dollar and net new business largely drove the increase.
Credit Quality Improves
As of Mar 31, 2018, non-performing assets were $85 million, down from $107 million registered in the prior-year quarter end. Also, allowance for loan losses decreased 4.9% year over year to $156 million. Provision for credit losses was a benefit of $5 million, unchanged year over year.
Capital Position
As of Mar 31, 2018, common equity Tier 1 ratio (Standardized Basel 3 fully phased-in) was 11.7% compared with 11.5% as of Mar 31, 2017. Tier 1 Leverage ratio (Advanced approach) was 6.5%, up from 6.4% registered as of Mar 31, 2017.
Share Repurchase
During the reported quarter, BNY Mellon bought back 11 million shares for $644 million.
Outlook
Management is of the opinion that a rising rate scenario along with the repositioning of the small securities portfolio will positively impact NIM as well as NIR. As a result, higher NIM and NIR will more than offset the reduced size of the balance sheet (if non-interest bearing deposits contract as expected).
The company expects investment and other income to be in the range of $40-$60 million in the quarters ahead in 2018.
The company expects to continue to deliver positive operating leverage in 2018.
Similar to fourth quarter 2017, the company expects to incur some additional severance, real estate and other charges in 2018.
The company expects to spend $250 million as investment-related expenses in 2018. This is over and above the $2 billion base amount.
Considering the company’s revenue growth model along with its expectation that all other non-technology expenses would grow at a very low rate, management expects earnings to grow in the low to mid-double-digits range in 2018.
Moreover, the effective tax rate is anticipated to be around 21% for 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter.
The Bank of New York Mellon Corporation Price and Consensus
At this time, BK has a poor Growth Score of F, however its Momentum is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise BK has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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BNY Mellon (BK) Up 3.7% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for The Bank of New York Mellon Corporation (BK - Free Report) . Shares have added about 3.7% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is BK due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
BNY Mellon's Q1 Earnings Beat Estimates, Expenses Up
BNY Mellon’s first-quarter 2018 earnings per share of $1.10 surpassed the Zacks Consensus Estimate of 97 cents. Also, the figure reflects an improvement of 32.5% from the prior-year quarter.
Results benefited from an improvement in revenues along with provision benefits. Also, assets under management (AUM) reflected growth. However, rise in expenses acted as a headwind.
Net income applicable to common shareholders for the quarter was $1.14 billion, up from $880 million recorded in the prior-year quarter.
Revenues Improve, Costs Rise
Total revenues (GAAP basis) for the quarter increased 9.9% year over year to $4.19 billion. Also, the figure surpassed the Zacks Consensus Estimate of $4.05 billion.
Net interest revenues, on a fully taxable-equivalent basis, were $925 million, up 15% year over year. The rise was driven by higher interest rates and deposits, partly offset by rise in average long-term debt.
Also, net interest margin increased 9 basis points (bps) year over year to 1.23%.
Total fee and other revenues increased 8.3% from the prior-year quarter to $3.27 billion. The rise was driven by an increase in investment services fees, investment management and performance fees, foreign exchange and other trading revenues, and investment and other income.
Total non-interest expenses were $2.74 billion, increasing 3.7% year over year. This reflects an increase in all expense components, except professional, legal and other purchased services costs, bank assessment charges and amortization of intangible assets.
Strong Asset Position
As of Mar 31, 2018, AUM was $1.9 trillion, up nearly 8% year over year. This reflected higher market values, net inflows and the favorable impact of a weaker U.S. dollar (principally versus the British pound), partly offset by the sale of CenterSquare Investment Management and some other changes.
Moreover, assets under custody and administration of $33.5 trillion were up 9% year over year. Higher market values, the favorable impact of a weaker U.S. dollar and net new business largely drove the increase.
Credit Quality Improves
As of Mar 31, 2018, non-performing assets were $85 million, down from $107 million registered in the prior-year quarter end. Also, allowance for loan losses decreased 4.9% year over year to $156 million. Provision for credit losses was a benefit of $5 million, unchanged year over year.
Capital Position
As of Mar 31, 2018, common equity Tier 1 ratio (Standardized Basel 3 fully phased-in) was 11.7% compared with 11.5% as of Mar 31, 2017. Tier 1 Leverage ratio (Advanced approach) was 6.5%, up from 6.4% registered as of Mar 31, 2017.
Share Repurchase
During the reported quarter, BNY Mellon bought back 11 million shares for $644 million.
Outlook
Management is of the opinion that a rising rate scenario along with the repositioning of the small securities portfolio will positively impact NIM as well as NIR. As a result, higher NIM and NIR will more than offset the reduced size of the balance sheet (if non-interest bearing deposits contract as expected).
The company expects investment and other income to be in the range of $40-$60 million in the quarters ahead in 2018.
The company expects to continue to deliver positive operating leverage in 2018.
Similar to fourth quarter 2017, the company expects to incur some additional severance, real estate and other charges in 2018.
The company expects to spend $250 million as investment-related expenses in 2018. This is over and above the $2 billion base amount.
Considering the company’s revenue growth model along with its expectation that all other non-technology expenses would grow at a very low rate, management expects earnings to grow in the low to mid-double-digits range in 2018.
Moreover, the effective tax rate is anticipated to be around 21% for 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter.
The Bank of New York Mellon Corporation Price and Consensus
The Bank of New York Mellon Corporation Price and Consensus | The Bank of New York Mellon Corporation Quote
VGM Scores
At this time, BK has a poor Growth Score of F, however its Momentum is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise BK has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.