Why an Earnings Beat is Likely for BNY Mellon (BK) in Q3?

The Bank of New York Mellon CorporationBK is scheduled to report third-quarter 2017 results on Oct 19, before the market opens. Its revenues and earnings are expected to grow year over year.

Last quarter, the company's earnings surpassed the Zacks Consensus Estimate. A rise in revenues and provision benefits were offset by an increase in expenses.

BNY Mellon has a decent earnings surprise history. It surpassed the Zacks Consensus Estimate twice and matched once in the trailing four quarters, with the average beat being 4.8%.

Moreover, activities of the company in the third quarter have encouraged analysts to revise earnings estimates upward. As a result, the Zacks Consensus Estimate of 93 cents has increased 1.1% over the last 30 days. Also, the figure reflects year-over-year growth of 2.8%.

Further, the company's Zacks Consensus Estimate for sales is $4 billion for the to-be-reported quarter, reflecting an improvement of 1.4% year over year.

Also, BNY Mellon's price performance seems impressive. Its shares have gained 15.5% so far this year, outperforming the 8.7% growth of the industry it belongs to.

Bank Of New York Mellon Corporation (The) Price and EPS Surprise

Bank Of New York Mellon Corporation (The) Price and EPS Surprise | Bank Of New York Mellon Corporation (The) Quote

Will the rally in share price continue post Q3 earnings? To a large extent it depends on whether the company will be able to maintain its trend of beating earnings estimates. Let's take a look at what our quantitative model predicts.

A Likely Positive Surprise?

According to our quantitative model, chances of BNY Mellon beating the Zacks Consensus Estimate in the third quarter are high. This is because it has the right combination of the two key ingredients, a positive Earnings ESP and a Zacks Rank #3 (Hold) or better, which is required to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks ESP: The Earnings ESP for BNY Mellon is +0.08%.

Zacks Rank: BNY Mellon carries a Zacks Rank of 3. This when combined with a positive ESP makes us reasonably confident of a positive earnings surprise.

Factors to Influence Q3 Results

Modest Improvement in Fee Revenue: The equity markets have performed decently in the third quarter. As a result, performance fee is expected to improve. Moreover, Depositary Receipts revenues witnessed a slight seasonal boost during the quarter. Although, a stronger U.S. dollar and seasonally lower securities lending revenues can be offsetting factors, overall fee revenues should improve during the quarter.

Notably, the Zacks Consensus Estimate for fee revenues of $3.13 billion reflects a marginal year-over-year improvement.

Higher Rates to Boost Net Interest Revenue (NIR): The Zacks Consensus Estimate for average interest-earning assets of $293 billion reflects a 1.2% decline from the year-ago quarter. Nevertheless, overall loan growth remained decent in the quarter. Given the improvement in loan balances along with the effect of rising interest rates, BNY Mellon should record an increase in NIR.

Moreover, management believes any rate hike will lead to an improvement in margin. Hence, improving margins due to the June rate hike is likely to more than offset the reduced size of balance sheet and hence lead to a modest increase in NIR in the quarter.

Expenses to Decline Slightly: Management expects legal and professional expenses to decline by nearly $10 million in third-quarter 2017. Despite the impact of investment-related expenses, overall costs are expected to decline.

Other Stocks That Warrant a Look

Here are some other stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

SLM Corporation SLM has an Earnings ESP of +1.01% and carries a Zacks Rank of 3. It is scheduled to report results on Oct 18.

Associated Banc-Corp ASB is slated to report results on Oct 19. It has an earnings ESP of +1.92% and a Zacks Rank of 3.

Invesco Ltd. IVZ is slated to report results on Oct 26. It has an earnings ESP of +0.65% and a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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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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