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Why Is BNY Mellon (BK) Up 5.1% Since the Last Earnings Report?

A month has gone by since the last earnings report for Bank Of New York Mellon Corporation (The) BK . Shares have added about 5.1% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

BNY Mellon Q4 Earnings Improve on Higher Revenues

BNY Mellon's fourth-quarter 2016 adjusted earnings per share of $0.77 increased 13.2% year over year. However, the figure lagged the Zacks Consensus Estimate of $0.78.

Results benefitted from an improvement in total revenue along with falling expenses. Also, AUM reflected growth. Further, a decline in provision for credit losses was a positive for the company. However, allowance for loan losses increased during the quarter. Also, a fall in foreign exchange and other trading revenues were the headwinds.

After considering M&I, litigation and restructuring charges, net income applicable to common shareholders for the quarter came in at $822 million, up 29.0% from the prior-year quarter.

The company reported 2016 adjusted earnings per share of $3.17, up 11% year over year. Moreover, the figure surpassed the Zacks Consensus Estimate of $3.15. Also, net income applicable to common shareholders (GAAP) for 2016 came in at $3.43 billion, up from $3.05 billion recorded in the previous year.

Revenues Improve, Costs Down

Total revenue (non-GAAP) for the quarter increased 2% year over year to $3.79 billion. However, the figure came in below the Zacks Consensus Estimate of $3.86 billion.

For 2016, total revenue came in at $15.23 billion, up 1% year over year. However, the figure missed the Zacks Consensus Estimate of $15.30 billion.

Quarterly net interest revenue, on a fully taxable equivalent basis, was $843 million, up 9% year over year. The rise was driven by higher interest rates, partly offset by lower yielding interest-earning assets.

Additionally, net interest margin grew 18 basis points to 1.17%.

Total fee and other revenues increased marginally from the prior-year quarter to $2.95 billion. An increase in total investment services fees was partially offset by lower investment and other income as well as a fall in foreign exchange and other trading revenue. The quarter also witnessed a fall in net securities gains compared with the prior-year quarter.

Total non-interest expenses (non-GAAP) amounted to $2.56 billion, down 2% year over year. This reflects lower expenses in nearly all categories, except software and equipment, distribution and servicing expense, net occupancy costs and other expenses.

Strong Asset Position

As of Dec 31, 2016, AUM was $1.65 trillion, up 1% year over year. This reflected higher market values, partly offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).

Moreover, assets under custody and administration of $29.9 trillion were up 3% year over year. Higher market values were partially offset by unfavorable impact of a stronger U.S. dollar.

Credit Quality: A Mixed Bag

Non-performing assets declined 63.4% year over year to $107 million. Further, provision for credit losses was $7 million, compared with $163 million in the year-ago quarter.

However, allowance for loan losses increased 7.6% year over year to $169 million.

Capital Ratios Improve

As of Dec 31, 2016, common equity tier-1 ratio (Standardized Basel 3 fully phased-in) came in at 11.3% compared with 10.2% as of Dec 31, 2015. Tangible common equity ratio was 6.7%, up from 6.5% as at Dec 31, 2015.

Share Repurchase

During the reported quarter, BNY Mellon bought back 18.4 million shares for $848 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimate. There have been three revisions lower for the current quarter.

Bank Of New York Mellon Corporation (The) Price and Consensus

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

VGM Scores

At this time, BNY Mellon's stock has a poor score of 'F' on both growth and momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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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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