What To Expect From BNY Mellon Stock In Q4?

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Bank of New York Mellon

BNY Mellon (NYSE: BK) is scheduled to report its fiscal Q4 2021 results on Tuesday, January 18, 2022. We expect BNY Mellon to remain marginally below the consensus estimates for revenues and earnings. The custody banking giant posted better than expected results in the last quarter, with the top-line increasing 5% y-o-y. It was driven by growth in asset servicing, investment management & performance fees, foreign exchange & other trading revenues. The company witnessed steady growth in the Assets under Management (AuM) and Assets under Custody & Administration (AuC/A) in the quarter. That said, the top-line was partially offset by a drop in net interest income (NII) due to interest rate headwinds. We expect the same trend to continue in the fourth quarter.

Our forecast indicates that BNY Mellon’s valuation is $63 per share, which is 2% below the current market price of around $64. Our interactive dashboard analysis on BNY Mellon’s Earnings Preview has more details. 

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(1) Revenues expected to be just below the consensus estimates

BNY Mellon’s revenues decreased 4% y-o-y to $15.8 billion in 2020. It was mainly driven by a 7% decline in the NII and a 4% drop in the total fees and other income. 

  • Total fees and other income contribute roughly 80% of the total revenues. Out of this, around 35% comes from asset servicing fees and 26% from investment management & performance fees. Notably, the asset servicing fees and investment management & performance fees are charged as a % of AuC/A and AuM respectively. While the AuC/A increased 10% to $45.3 trillion between December 2020 and September 2021, the total AuM grew 4% to $2.3 billion over the same period. Overall, the cumulative nine months figure increased 3% y-o-y to $9.98 billion. We expect the same momentum to continue in the fourth quarter.
  • The bank suffered a 7% y-o-y drop in the NII in 2020, mainly due to the lower interest rate environment. The pattern continued in 2021, with the cumulative nine months revenues decreasing by 15% y-o-y to $1.9 billion. We expect the fourth-quarter results to be on similar lines.
  • Overall, we expect BNY Mellon’s revenues to remain around $15.9 billion for the full-year FY2021.

Trefis estimates BNY Mellon’s fiscal Q4 2021 revenues to be around $3.96 billion, just below the $3.98 billion consensus estimate. We expect the growth in total fees and other income to drive the fourth-quarter results.

The Federal Reserve is expected to hike the interest rates in 2022. This will benefit BNY Mellon’s net interest income. Further, growth in AuM and AuC/A is likely to continue in the subsequent quarters. Our dashboard on BNY Mellon’s revenues offers more details on the company’s operating segments along with our forecast for FY2022.

2) EPS likely to marginally miss the consensus estimates

BNY Mellon Q4 2021 adjusted earnings per share (EPS) is expected to be $0.98 per Trefis analysis, almost 3% below the consensus estimate of $1.01. The bank reported a 20% y-o-y fall in the adjusted net income to $3.4 billion in 2020. It was due to lower revenues and higher expenses as a % of revenues. Further, the firm reported cumulative nine months adjusted net income of $2.7 billion, which is at the same level as the year-ago period. That said, the EPS figure has slightly improved from $3.04 to $3.14 over the same period, due to share buybacks. We expect the fourth-quarter results to be on similar lines. Overall, BNY Mellon is likely to report an adjusted net income of $3.4 billion and annual EPS of $4.12 for full-year 2021. 

(3) Stock price estimate 2% below the current market price

We arrive at BNY Mellon’s valuation, using an EPS estimate of around $4.12 and a P/E multiple of just above 15x in fiscal 2021. This translates into a price of $63, which is 2% less than the current market price of close to $64. 

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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 Returns Jan 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 BK Return 9% 9% 34%
 S&P 500 Return -1% -1% 111%
 Trefis MS Portfolio Return -5% -5% 274%

[1] Month-to-date and year-to-date as of 1/13/2022
[2] Cumulative total returns since the end of 2016

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