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BNY Mellon Stock Hits New 52-Week High: Is More Upside Left?

Zacks Equity Research

On Jun 28, shares of The Bank of New York Mellon Corporation BK touched a new 52-week high of $50.77. Notably, the stock closed the day a bit lower at $50.60, up 1.9% from the prior-day’s closing.

What Cheered the Investors?

Approval of BNY Mellon’s 2017 capital plan by the Federal Reserve is the major reason for the 52-week high. Other 33 big banks including JPMorgan Chase & Co. JPM, Bank of America Corporation BAC and BB&T Corporation BBT also received approval for their respective capital plans.

BNY Mellon’s capital plan includes roughly 26% dividend hike (subject to board approval) to 24 cents per share. Based on yesterday’s closing price, the dividend yield is 1.9%.

BNY Mellon announced a share repurchase authorization worth $2.6 billion for the next four quarters. Also, contingent upon issuance of $500 million preferred stock, the company received consent to buy back additional $500 million shares.

Given its healthy liquidity position and lower debt/equity ratio compared to the industry, BNY Mellon’s capital deployment activities look sustainable.

Can the Momentum Continue?

BNY Mellon’s expense-saving efforts have started yielding results and have been constantly supporting profitability. The company’s total non-interest expenses have declined at a three-year (2014–2016) compound annual growth rate of 7%. Further, management projects total adjusted expenses to be up less than 1% in 2017.

Also, with a rising rate environment, pressure on BNY Mellon’s margins seems to be easing. Also, the company’s net interest revenue (NIR) has been witnessing improvement. The company anticipates NIR to increase in the range of 4–6% while net interest margin will likely be in the range of 120–130 basis points by the end of 2017.

The company’s earnings are projected to grow at the rate of 9.9% and 11.3% for 2017 and 2018, respectively. Further, BNY Mellon’s long-term (three to five years) estimated earnings growth rate of 9% promises rewards for investors in the long run.

Further, BNY Mellon stock seems undervalued based on its Price/Book (P/B) and PEG ratios. The company has P/B ratio of 1.46 compared with the industry average of 1.49. Also, the company’s PEG ratio of 1.58 is below the industry average of 1.79.

These above-mentioned factors suggest that this Zacks Rank #3 (Hold) stock has further upside potential.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Additionally, BNY Mellon’s shares have increased 6.8% in the last six months, outperforming the 2.8% rally for the Zacks categorized Major Regional Banks industry.

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