BNY Mellon Earnings Preview: Why BNY Mellon Could Report An Earnings Beat Despite Revenue Headwinds

BNY Mellon (NYSE: BK) will release its Q4 and full-year 2019 results on Thursday, January 16. Trefis details expectations from the custody banking giant’s earnings announcement in an interactive dashboard, parts of which we highlight below. We believe that BNY Mellon is likely to beat FY19 earnings expectations by a whisker despite missing on revenues. Revenues for full-year 2019 are likely to have decreased to $15.6 billion from $16.4 billion in 2018 due to a combination of asset management headwinds as well as the impact of the Fed’s rate cuts. Our estimate is slightly lower than the consensus figure of $15.7 billion. Also, the EPS figure should have reduced to $4.01 for 2019 (slightly higher than the consensus estimate of $4.00) from $4.04 in 2018 as the expected decline in revenues will also weigh on the net income margin. Since the expected results are very close to the consensus estimate for FY 2019, it should not result in any significant movement in the BNY Mellon’s stock price once it announces earnings. Our forecast indicates that BNY Mellon’s valuation is $51 a share, which is around the current market price.

Trefis shines the spotlight on key assumptions and data for BNY Mellon, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for BNY Mellon’s FY19 earnings in our interactive dashboard.

(1) BNY Mellon’s revenues would decrease 4.6% to $15.6 billion in 2019; slightly below consensus estimates

• Trefis estimates BNY Mellon’s revenues for FY19 to be $15.6 billion, slightly below the consensus estimate of $15.7 billion.
• Revenues have grown 8% from $15.2 billion in 2016 to $16.4 billion in 2018. But we expect it to have dropped 4.6% to $15.6 billion in 2019 due to the negative impact of the Fed’s rate cuts on net interest income even as secular changes in the asset management industry weigh on fees for the Investment Management segment.
• Investment Servicing revenues should have decreased by 4% from $12.3 billion in 2018 to $11.8 billion in 2019 due to a 6% decline in Asset Servicing revenues.
• Similarly, Investment Management revenues will remain below the peak level seen in 2018. Revenues for this segment have grown over the last two years, primarily due to growth in total Assets under Management (AuM).
• While we expect total AuM to grow over the next three years, intense competition in the investment management space coupled with lower asset valuations should negatively impact fees as % of AuM – reducing the segment revenues by 6.1% from $4.1 billion to $3.8 billion in 2019.
• Also, we expect BNY Mellon’s revenues to grow ~1% y-o-y in 2020 to reach $15.8 billion.

Our interactive dashboard analysis, ‘How Does BNY Mellon Make Money?‘ provides an in-depth view of the company’s revenues along with our forecasts for 2020.

(2) EPS would have decreased 1% from $4.04 in 2018 to $4.01 in 2019, which is marginally higher than consensus estimates

• BNY Mellon’s 2019 earnings per share (EPS) expected to be $4.01 per Trefis analysis, slightly higher than the consensus estimate of $4.00 per share.
• A decrease in revenues as detailed above will drag down the EPS figure despite an expected reduction in Total Expenses of 3.6% and the lower share count for the year.
• As we forecast BNY Mellon’s Revenues to drop at a faster rate than Expenses in 2019 (4.6% vs. 3.6%), this will result in a 75 bps decrease in BNY Mellon’s Net Income Margin figure from 24.8% in 2018 to 24.1% in 2019.
• For 2020, we believe that an increase in revenues coupled with slightly higher growth in expenses will result in the net income margin figure shrinking to 23.8%.

Our interactive dashboard analysis, How Does BNY Mellon Spend Its Money, provides an in-depth view of the company’s expenses.

(3) Stock price estimate is around the current market price

• A trailing P/E multiple of 12.6x looks appropriate for BNY Mellon’s stock, which is marginally lower than the implied P/E multiple of 12.7x using the current stock price
• Trefis’ forecast for BNY Mellon’s 2019 earnings is slightly higher than the market expectations, while the P/E multiple is a touch lower. Taken together, this works out to a fair value of $51 for BNY Mellon’s stock, which is roughly the same level as the current market price.

Additionally, you can input your estimates for BNY Mellon’s key metrics in our interactive dashboard for BNY Mellon’s pre-earnings, and see how that will affect the company’s stock price.

See all Trefis Price Estimates and Download Trefis Data here

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