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Can BNY Mellon (BK) Beat Q2 Earnings on Top-Line Growth? - Analyst Blog

We expect The Bank of New York Mellon CorporationBK to beat earnings expectations when it reports second-quarter 2015 results on Jul 21, before the market opens.

Why a Likely Positive Surprise?

Our proven model shows that BNY Mellon is likely to beat earnings as it has the right combination of two key components. Note that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) to have a significantly higher chance of beating earnings.

Zacks ESP: The Earnings ESP for BNY Mellon is +3.03%. This is because the Most Accurate estimate of 68 cents per share is above the Zacks Consensus Estimate of 66 cents per share.

Zacks Rank: BNY Mellon's Zacks Rank #3 increases the predictive power of ESP. The combination of the company's Zacks Rank #3 and a positive ESP makes us confident of an earnings beat.

Factors Influencing Q2 Results

BNY Mellon resolved a foreign exchange related class action lawsuit during the quarter, with a settlement amount of around $180 million. This will result in a pre-tax charge of $50 million in the upcoming results. To top that, elevated levels of staff and occupancy costs along with the uncertain impact of the European resolution fund are expected to keep expenses on the higher level this quarter. The company's streamlining initiatives, however, should benefit the expense run-rate.

Management anticipates benefit expenses to rise around $30 million in the quarter, owing to the benefit received in the first quarter of 2015 associated with the curtailment of its defined benefit plan. However, the company predicts incentives to fall sequentially by around $65 million on the back of long-term awards paid in the prior quarter.

On the revenue front, BNY Mellon expects net interest revenues to increase slightly on a sequential basis, driven by a change in the asset mix and day count. Moreover, the company expects revenues to rise, driven by considerable growth in assets under management ("AUM"), to mostly mitigate the loss on the hedging activity going forward.

Also, investment and other income will come in the range of $90-$100 million, while issuer-services fees will face pressure due to runoff of higher-margin structured-debt securities. Further, the strengthening dollar is expected to impact Investment Management revenues owing to its international presence. However, the impact of the same will be minor on the overall company.

The effective tax rate is anticipated to be in the 25%-26% range in the quarter. Further, management believes that its decision to exit the derivative sales and trading markets will assist it in improving operating margin and return on capital.

BNY Mellon's activities during the quarter failed to win analysts' confidence. Consequently, the Zacks Consensus Estimate for the quarter remained stable at 66 cents per share over the last 7 days.

Stocks That Warrant a Look

BNY Mellon is not the only firm looking up this earnings season. We are likely to see earnings beats coming from the following finance stocks as well:

Huntington Bancshares Inc. HBAN has an earnings ESP of +5.00% and a Zacks Rank #2. It is scheduled to report results on Jul 23.

Interactive Brokers Group, Inc. IBKR has an Earnings ESP of +12.50% and a Zacks Rank #2. It is slated to report results on Jul 21.

The Earnings ESP for American Capital, Ltd. ACAS is +26.09% and it has a Zacks Rank #1. The company is slated to release results on Aug 5.

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BANK OF NY MELL (BK): Free Stock Analysis Report

HUNTINGTON BANC (HBAN): Free Stock Analysis Report

INTERACTIVE BRK (IBKR): Free Stock Analysis Report

AMER CAP LTD (ACAS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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