BNY Mellon Stock To Beat The Street Expectations In Q2

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BK: Bank of New York Mellon logo
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Bank of New York Mellon

BNY Mellon (NYSE: BK) is scheduled to report its fiscal Q2 2021 results on Thursday, July 15. We expect BNY Mellon to top the earnings and revenues expectations. While the bank outperformed the consensus estimates in its first-quarter results, it reported a year-on-year drop in its revenues and profitability. The revenues suffered due to the lower net interest income (NII) driven by the interest rate headwinds. Further, higher operating expenses as a % of revenues weighed on the profitability numbers. We expect the same trend to continue in the second quarter as well.

Our forecast indicates that BNY Mellon’s valuation is around $53 per share, which is 5% more than the current market price of around $50. Look at our interactive dashboard analysis on BNY Mellon’s pre-earnings: What To Expect in Q2? for more details. 

(1) Revenues expected to remain slightly above the consensus estimates

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Trefis estimates BNY Mellon’s fiscal Q2 2020 revenues to be around $3.93 billion, marginally above the $3.88 billion consensus estimate. The bank has suffered a 4% y-o-y drop in revenues in 2020, driven by a 7% decline in net interest income and a 4% decrease in total fees and other revenues. The firm’s NII continued to suffer in the first quarter of 2021, too, followed by a slight drop in non-interest income, which further weighed on the top-line. The NII was down due to the continued impact of the lower interest rate environment, partially offset by a rise in interest-earning assets. Notably, the custody banking giant derives close to 50% of the total revenues from asset servicing and investment management fees collectively, which are charged as a % of Assets under Custody & Administration (AuC/A) and Assets under Management (AuM), respectively. While the firm has reported strong growth in assets over the recent quarters, it has reduced the fees % due to the fierce competition in the industry, restricting the growth of fee income. We expect the same trend to drive the second-quarter results.

Although the interest rates are unlikely to see a swift revival to the pre-Covid-19 levels anytime soon, some increase in the interest-earnings assets will likely benefit the top-line. Further, the AuM and AuC/A are likely to continue their growth trajectory. Overall, we expect the company to report $15.7 billion in the full year 2021 revenues. Our dashboard on BNY Mellon Revenues offers more details on the company’s segments.

(2) EPS likely to beat consensus estimates

BNY Mellon Q2 2020 adjusted earnings per share (EPS) is expected to be $1.05 per Trefis analysis, almost 5% above the consensus estimate of $1.00. The earnings figure has suffered in 2020, primarily due to an increase in operating expenses as a % of revenues from 66.2% to 69.6%. The same trend was evident in the first quarter 2021 results, too, with the EPS decreasing by 7% y-o-y to $0.97. We expect the operating expenses as a % of revenues to remain around the last quarter figure in Q2.

Overall, for the full year, we expect the adjusted net income to be around $3.4 billion – at the same level as last year’s figure. Further, the bank has restarted its share repurchase program to maximize shareholder returns. This will likely result in an EPS of around $4.11 compared to $3.83 in the previous year. 

(3) Stock price estimate 5% more than the current market price

Going by our BNY Mellon Valuation, with an EPS estimate of around $4.11 and a P/E multiple of around 13x in fiscal 2021, this translates into a price of $53, which is 5% above the current market price of around $50.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

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