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Is an Earnings Beat in Store for BNY Mellon (BK) in Q1?

Zacks Equity Research

The Bank of New York Mellon Corporation BK is scheduled to report first-quarter 2019 results on Apr 17, before the market opens. Its revenues and earnings for the to-be-reported quarter are expected to decline year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Higher net interest revenues (NIR), lower expenses and no provisions were partly offset by a decline in fee income.

BNY Mellon has an impressive earnings surprise history. Its earnings did not miss the Zacks Consensus Estimate in any of the trailing four quarters. The average positive surprise was 5.7%.

The Bank of New York Mellon Corporation Price and EPS Surprise
 

The Bank of New York Mellon Corporation Price and EPS Surprise | The Bank of New York Mellon Corporation Quote

However, activities of the company in the first quarter were not adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of 96 cents decreased 2% over the past 30 days. Moreover, the figure reflects a year-over-year decline of 12.7%.

Further, the Zacks Consensus Estimate for the company’s sales for the to-be-reported quarter is pegged at $3.99 billion, reflecting a decline of 4.8% year over year.

Driven by robust fundamentals, BNY Mellon’s shares have gained 7% in the past six months against nearly 1% decline recorded by the industry it belongs to.

Will the price performance improve further post first-quarter earnings? To a great extent, it depends on whether the company will be able to beat earnings estimates this time around.

Before we take a look at what our quantitative model predicts, let’s check the factors that are likely to impact first-quarter results.

Factors to Influence Q1 Results

The Zacks Consensus Estimate for assets under management (AUM) for the first quarter is pegged at $1.84 trillion, which reflects growth of 8.4% sequentially. Further, the Zacks Consensus Estimate for total assets under custody and administration of $35.25 trillion reflects growth of 6.5% sequentially. Thus, investment management and performance fees are likely to be positively impacted during the first quarter, driven by expected growth in assets.

Moreover, supported by decent loan growth and higher rates (despite the flattening of the yield curve) NIR is expected to improve in the first quarter.

Notably, management expects NIR in the first quarter to be flat to up marginally on a sequential basis, based on expectations of decline in non-interest-bearing deposit balances and higher yield on securities portfolio.

Despite taking cost-saving initiatives, the company’s expenses have remained elevated over the past few years, mainly because of higher litigation and restructuring charges. Moreover, due to continued rise in investment-related costs, overall expenses are expected to increase slightly in the first quarter.

Notably, management expects expenses in the first quarter to rise 1-2% sequentially and year over year because of the impact to staff expenses from the acceleration of long-term incentive compensation expenses for retirement eligible employees.

Now, let’s take a look at what our quantitative model predicts.

According to our quantitative model, chances of BNY Mellon beating the Zacks Consensus Estimate in the first quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — which is required to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for BNY Mellon is +0.63%.

Zacks Rank: BNY Mellon currently carries a Zacks Rank of 3, which increases the predictive power of ESP.

Other Stocks That Warrant a Look

Here are some other finance stocks that you may want to consider as these too have the right combination of elements to post an earnings beat this quarter, per our model.

BankUnited, Inc. BKU has an Earnings ESP of +1.89% and carries a Zacks Rank of 3 at present. The company is slated to release results on Apr 24.

Associated Banc-Corp ASB is expected to release results on Apr 25. It presently has an Earnings ESP of +0.55% and a Zacks Rank #3.

SVB Financial Group SIVB is slated to release results on Apr 25. It has an Earnings ESP of +0.42% and currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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