With the economic and industry factors turning in favor of finance stocks, we have selected The Bank of New York Mellon Corporation BK for your consideration.
The Zacks Rank #2 (Buy) bank displays earnings growth potential on the back of prudent cost-saving measures and capital strength. Also, its improving credit quality remains a tailwind.
Shares of BNY Mellon have gained 13.9% year to date, underperforming the industry’s rally of 18.6%.
Nevertheless, the stock has seen the Zacks Consensus Estimate for current-year earnings being revised slightly upward over the last 90 days.
What Makes the Stock Attractive
Earnings Growth: The company has witnessed EPS growth of 9.9% over the past three-five years compared with3.2% for the industry. Moreover, this earnings momentum is likely to continue in the near term, reflected by the company’s projected EPS growth (F1/F0) of 11.7%.
Also, the company’s long-term (three-five years) estimated EPS growth rate of 7.8% promises rewards for investors inthe long run.
Strong Leverage: BNY Mellon’s debt/equity ratio is 0.85 compared withthe industry average of 0.89, indicating a relatively lower debt burden. It also reflects the company’s financial stability even in adverse economic conditions.
Effective Cost-Saving Initiatives: BNY Mellon’s cost-saving efforts have continuously supported profitability. Expenses have declined at a CAGR of 7% over the last three years (ended 2016).
Impressive Capital Deployment: BNY Mellon’s capital deployment endeavors have remained on track. It got an approval for its 2017 capital plan, which includes repurchase of shares worth up to $3.1 billion and a 26% increase in quarterly dividend. Also, these activities look sustainable as the company’s debt/equity ratio and dividend payout ratio compare favorably with the industry.
Superior Return on Equity (ROE): The company’s ROE of 10.51% compares favorably with the industry’s ROE of 10.29%, reflecting the company’s efficiency in utilizing shareholder’s funds.
Improving Credit Quality: BNY Mellon’s credit quality has improved significantly over the years. The ratio of total allowance for credit losses to total loans came in at 0.44% compared with 0.83% in 2012. Also, the company reported benefit for credit losses in four of the prior five years.
Other Stocks to Consider
Some other top-ranked banking stocks are Hancock Holding Company HBHC, Capstar Financial Holdings CSTR and First Bancorp FBNC, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hancock Holding has seen the Zacks Consensus Estimate for current-year earnings being revised slightly upward in the last 60 days. The company’s share price has risen almost 10%, over the past six months.
CapstarFinancial’s current-year earnings estimates have been revised 24% upward over the last 60 days. Also, its shares have climbed 18.9% in the past six months.
The Zacks Consensus Estimate for First Bancorp’s current-year earnings has moved 9.7% northover the last 60 days. In the past six months, its share price has grown19.2%.
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