On Sep 1, 2014, we issued an updated research report on The Bank of New York Mellon Corporation (BK). Robust growth in assets under management (AUM) remained the key strength of BNY Mellon, but the pressurized top line continued to be a chief concern.
BNY Mellon’s consistent efforts to expand via acquisitions and gain foothold in foreign markets are expected to enhance its growth potential going forward. Moreover, the bank’s second-quarter 2014 results, which showed 15% year-over-year growth in AUM, marked its sixth consecutive quarter of earnings beat and resulted in a 4.3% rise in the share price since the earnings release.
Moving onto BNY Mellon’s capital deployment plans, in Apr 2014, the quarterly cash dividend was hiked 13% to 17 cents per share. Also, a new $1.74 billion share repurchase program was announced in Mar 2014. These sustained initiatives undertaken by the bank to return capital helped boost investors’ confidence, which has been witnessed in the 15% year-to-date increase in share price.
On the flip side, elevated expenses and subdued revenue growth continued to weigh on BNY Mellon’s bottom line. Though the bank looks ahead to a better expense management and improved revenue generation in the upcoming quarters, we remain apprehensive due to the expected higher litigation costs and additional expenses triggered by increased restructuring activities in the near term.
Also, a persistently low interest rate environment, sluggish economic recovery and stringent regulatory requirements are expected to keep the bank’s financials under strain.
This can be observed in the Zacks Consensus Estimate for 2014, which fell 1.2% over the last 30 days and decreased by a penny for 2015 over the same time period.
BNY Mellon now has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked banks include Heartland Sierra Bancorp (BSRR), Farmers Capital Bank Corporation (FFKT) and Northrim Bancorp Inc. (NRIM). All these stocks sport a Zacks Rank #1 (Strong Buy).
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