On Dec 3, 2013, we reaffirmed our long-term recommendation on The Bank of New York Mellon Corporation (BK) at Neutral. This was based on the company’s better-than-expected third-quarter results as well as the various restructuring initiatives and acquisitions. However, pressure on net interest margin and rising operating expenses remain challenges.
Why the Neutral Stance?
BNY Mellon’s third-quarter adjusted earnings per share marginally beat the Zacks Consensus Estimate. Results benefited from a rise in revenues, partially offset by higher non-interest expenses.
Additionally, BNY Mellon remains on track to achieve its targeted cost savings by the end of 2013. Moreover, the company is an attractive pick for yield-seeking investors due to its steady capital deployment activities. This also reflects the bank’s strong capital position.
On the flip side, BNY Mellon will likely experience significant margin pressure in the near-to-mid-term due to the persistent low interest rate environment. Further, despite undertaking cost savings initiatives, the company’s expenses continue to rise. Also, we do not expect any significant reduction in BNY Mellon’s expenses due to the company’s continuous expansion of its global footprint.
Following the third-quarter results, the Zacks Consensus Estimate for 2013 has remained stable at $2.28 per share over the last 60 days. For 2014, the Zacks Consensus Estimate fell nearly 1% to $2.50 per share over the same time frame. Hence, BNY Mellon currently carries a Zacks Rank #3 (Hold).
Other Banks to Consider
Some better-ranked banks include Fifth Third Bancorp (FITB), KeyCorp. (KEY) and Huntington Bancshares Incorporated (HBAN). All these carry a Zacks Rank #2 (Buy).