The Bank of New York Mellon Corporation (BK) is scheduled to report its fourth-quarter and full-year 2014 results on Jan 23, before the market opens.
Last quarter, BNY Mellon’s adjusted earnings per share surpassed the Zacks Consensus Estimate. Higher fee and other revenues along with consistent growth in assets under management (AUM) were the growth drivers. However, pressurized top line and escalating expenses were the weakening factors.
BNY Mellon recorded an earnings beat in all the last four quarters with an average surprise of 7.2%.
Will BNY Mellon be able to keep the earnings streak alive this quarter? Let’s see how things have shaped up for this announcement.
Factors to Influence Q4 Results
Though the first nine months of 2014 reflected subdued revenue growth, BNY Mellon expects the top line to gather momentum in the upcoming quarter driven by robust investment performance and a strengthening Investment Management segment. Management predicts investment and other income to rise by $15 million sequentially, with the aggregate figure expected in the range of $90–$100 million in the upcoming release.
However, an increase in income tax expense is expected to weigh on the income. Also, management forecasts net interest income to remain at par with the prior-quarter figure of $721 million.
While depositary receipt fees are expected to decline, performance fees are projected to rise in this quarter. In addition, issuer-services fees are expected to be pressurized due to runoff of higher-margin structured-debt securities.
Further, the streamlining initiatives taken in the second quarter of 2014 are anticipated to benefit expense run rate in this quarter. Nonetheless, management expects higher operating expenses in the upcoming release owing to seasonality, elevated staff expense and higher business development as well as consulting and legal expenses.
For 2014, however, expenses are predicted to stay relatively flat on a year-over-year basis, not taking into consideration the litigation and restructuring costs related to M&I.
BNY Mellon’s activities during the quarter failed to win analysts’ confidence. Consequently, the Zacks Consensus Estimate for the quarter remained stable at 60 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that BNY Mellon is likely to beat the Zacks Consensus Estimate in the fourth quarter. This is because 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) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for BNY Mellon is 0.00%. This is because the Most Accurate estimate of 60 cents per share is at par with the Zacks Consensus Estimate.
Zacks Rank: BNY Mellon’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
Here are some other financial stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Earnings ESP for The Allstate Corporation (ALL) is +3.05% and it has a Zacks Rank #1. The company is slated to release results on Feb 4.
CIT Group Inc. (CIT) has an earnings ESP of +5.38% and a Zacks Rank #1. It is scheduled to report results on Jan 27.
Cigna Corp. (CI) has an Earnings ESP of +1.21% and a Zacks Rank #2. It is slated to report results on Feb 5.
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