What To Expect From BNY Mellon Stock?

+1.24%
Upside
50.23
Market
50.85
Trefis
BK: Bank of New York Mellon logo
BK
Bank of New York Mellon

BNY Mellon stock (NYSE: BK) has lost 24% YTD as compared to the 18% drop in the S&P500 index over the same period. Further, at its current price of $44 per share, it is trading approximately 13% below its fair value of $51 – Trefis’ estimate for BNY Mellon’s valuationThe custody banking giant outperformed the consensus estimates in the third quarter of 2022, with revenues increasing 6% y-o-y to $4.28 billion. It was driven by a 44% y-o-y jump in the net interest income (NII), partially offset by a 1% drop in the fee & other revenues. The NII benefited from an increase in net interest margin due to an improvement in benchmark interest rates. On the flip side, the fee income mainly suffered due to a 12% decrease in the investment management & performance fees. Notably, the bank derives close to 80% of its revenues from fees and other income. Further, the Assets under Management (AuM) and the Assets under Custody & Administration (AuC/A) decreased by 23% and 7% y-o-y, respectively. Overall, the adjusted net income fell by 64% y-o-y to $319 million. It was because of a 26% rise in the noninterest expenses due to goodwill impairment in the investment management division.

The company’s top line grew 5% y-o-y to $12.46 billion in the first nine months of 2022. It was primarily driven by a 26% growth in the NII due to higher interest rates. That said, the two key metrics – Assets under Management (AuM) and Assets under Custody & Administration (AuC/A) posted a year-on-year decline. Altogether, the adjusted net income was reduced by 32% y-o-y to $1.85 billion. This was due to higher provisions for credit losses and a 15% increase in noninterest expenses.

Moving forward, we expect the NII to drive revenues in Q4. Overall, BNY Mellon’s revenues are estimated to touch $16.7 billion in FY2022. Additionally, the adjusted net income margin is likely to see a slight decrease from 22% to 19% in the year. It will likely result in an EPS of around $3.88, which coupled with a P/E multiple of just above 13x, will lead to a valuation of $51.

 Returns Dec 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 BK Return -4% -24% -7%
 S&P 500 Return -5% -18% 74%
 Trefis Multi-Strategy Portfolio -4% -21% 218%

[1] Month-to-date and year-to-date as of 12/16/2022
[2] Cumulative total returns since the end of 2016

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