The Bank of New York Mellon Corporation (BK) is scheduled to report its third-quarter 2014 results on Oct 17, before the market opens.
Last quarter, BNY Mellon’s adjusted earnings per share outpaced the Zacks Consensus Estimate. Results reflected strong growth in assets under management (AUM). However, fall in net interest revenue, fee income and a rise in non-interest expenses acted as dampeners.
BNY Mellon recorded an earnings beat in all of the trailing last four quarters with an average positive surprise of 1.70%. Notably, share price of the company has fallen 5.2% since Oct 9.
Is BNY Mellon likely to miss on earnings this quarter? Let’s see how things have shaped up for this announcement.
Factors to Influence Q3 Results
The sale of the Wing Hang Bank stake, completed in July, should result in an after-tax gain of around $320 million in this quarter. However, despite the gain, we expect the top line to remain stressed given the slowly recovering economy.
BNY Mellon expects muted growth in foreign exchange trading and securities lending revenues due to seasonality of lower volumes as well as pressurized issuer-services fees due to runoff of higher-margin structured-debt securities. However, the company anticipates revenue to grow and investment and other income to be around $90–$100 million.
Driven by the prevailing low interest rate environment, we observe that BNY Mellon’s net interest margin has been strained over the past few years. We expect this pressure to continue in the upcoming release as the company’s interest-bearing deposit costs are expected to rise at a faster rate than asset yields due to competitive pressure, leading to added margin compression.
Nonetheless, the streamlining initiatives undertaken by the company are expected to yield results in the form of controlled costs.
BNY Mellon’s activities during the quarter failed to win analysts’ confidence. Consequently, the Zacks Consensus Estimate for the quarter remained stable at 61 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 third 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.
Negative Zacks ESP: The Earnings ESP for BNY Mellon is -3.28%. This is because the Most Accurate estimate of 59 cents per share is below the Zacks Consensus Estimate of 61 cents.
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 Capital One Financial Corporation (COF) is +2.08% and it has a Zacks Rank #2. The company is slated to release results on Oct 16.
Discover Financial Services (DFS) has an earnings ESP of +0.75% and a Zacks Rank #2. It is scheduled to report results on Oct 21.
The Goldman Sachs Group, Inc. (GS) has an Earnings ESP of +1.24% and a Zacks Rank #3. It is slated to report results on Oct 16.
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