On Jun 11, 2013, we reiterated our long-term recommendation on The Bank of New York Mellon Corporation (BK) at Neutral. This is based on its capital deployment activities and various restructuring initiatives and acquisitions. However, the company reported unfavorable first-quarter 2013 results.
Why the Neutral Stance?
The Bank of New York Mellon Corporation’s first-quarter 2013 adjusted earnings of 50 cents per share lagged the Zacks Consensus Estimate by 2 cents. Also, this compared unfavorably with the prior-quarter earnings of 53 cents. Lower-than-expected results were mainly due to a rise in operating expenses and lower net interest income, partially offset by almost stable fee income. However, asset quality continued to show improvement and capital ratios remained healthy. Further, BNY Mellon’s asset position continued to improve.
Following the first-quarter 2013 earnings, the Zacks Consensus Estimate went down by 2.2% to $2.25 per share over the last 60 days. Also, for 2014, the Zacks Consensus Estimate went down by 0.8% to $2.55 per share over the same time frame. The company currently has a Zacks Rank #3 (Hold).
On Apr 9, 2013, BNY Mellon hiked its quarterly dividend by 15% to 15 cents per share, following the approval of its capital plan by the Federal Reserve. The company also announced a new share repurchase program, authorizing the purchase of upto $1.35 billion common stock through the first quarter of 2014.
Moreover, over the last few years, BNY Mellon has completed several acquisitions both in the U.S. and overseas. This is expected to benefit the company in terms of both increased revenue and cross-selling opportunities.
On the other hand, BNY Mellon is anticipated to experience significant margin pressures in the near-to-mid-term due to the persistent low interest-rate environment. Moreover, BNY Mellon has been consistently experiencing mounting expenses.
Other Banks to Consider
Some better performing banks include Enterprise Financial Services Corp. (EFSC), Old Second Bancorp Inc. (OSBC) and Tower Financial Corporation (TOFC). All these carry a Zacks Rank #1 (Strong Buy).
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