On Dec 1, 2014, we issued an updated research report on The Bank of New York Mellon Corporation (BK). Consistent growth in assets under management (AUM) continued to be the chief strength, while strained top line and weak expense management remained the dampening factors.
On Oct 28, BNY Mellon held its investors’ day conference in which it provided an extensive guidance for 2015-2017. Driven by the positive outlook, shares of the company have registered a rise of 10.7% since then. Moreover, the 7.4% year-to-date growth in AUM compared with the corresponding prior-year period reflects the company’s fundamental strength.
In spite of reporting lower revenues in its third-quarter 2014 earnings results, the bank recorded an overall improved performance – marking its seventh consecutive quarter of earnings beat. Also, the bank’s steady capital deployment initiatives continue to boost investors’ confidence in the stock.
Moreover, BNY Mellon has been actively growing via acquisitions. In Oct 2014, it announced a deal to acquire Cutwater Asset Management. The bank has been restructuring its business and streamlining operations to improve its focus and efficiency and capitalize on available opportunities. This will aid in reviving revenue generation in the forthcoming quarters.
On the flip side, higher expenses and subdued revenue growth continue to pressurize BNY Mellon’s bottom line. The bank has undertaken cost-cutting initiatives, which are expected to yield results in the form of better expense management in the upcoming quarters. However, we remain apprehensive due to the anticipated occurrence of restructuring and legal expenses in the near term.
Also, a persistently low interest rate environment, slow economic recovery and stringent regulatory requirements will likely keep the bank’s financials under stress.
This can be observed in the Zacks Consensus Estimate for 2014, which remained flat over the last 30 days but increased 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 finance stocks include AmTrust Financial Services, Inc. (AFSI), Beneficial Mutual Bancorp Inc. (BNCL) and Credit Acceptance Corp. (CACC). All these stocks sport a Zacks Rank #1 (Strong Buy).
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