Is an Earnings Beat in Store for BNY Mellon (BK) in Q3?

The Bank of New York Mellon Corporation BK is scheduled to report third-quarter 2018 results on Oct 18, before the market opens. Its revenues and earnings are expected to grow year over year.

In the last reported quarter, the company’s earnings were in-line with the Zacks Consensus Estimate. Higher revenues and assets under management (AUM) growth were offset by rise in expenses.

BNY Mellon has an impressive earnings surprise history. Its earnings did not lag the Zacks Consensus Estimate in any of the trailing four quarters. The average positive surprise was 4.7%.

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 third quarter were not adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of $1.04 has remained unchanged over the past 30 days. Nevertheless, the figure reflects year-over-year growth of 6.1%.

Further, the company’s Zacks Consensus Estimate for sales for the to-be-reported quarter is $4.14 billion, reflecting an improvement of 3.4% year over year.

Despite robust fundamentals, the company’s price performance does not look impressive. Its shares have lost 10.2% in the past year against 1.5% rally of the industry it belongs to.

Will the price performance improve post Q3 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 Q3 results.

Factors to Influence Q3 Results

Stable to Modestly Increasing Fee Revenues: The amount of securities on loans declined sequentially during the third quarter because of lower equity trading volumes and negative impact of seasonality. Moreover, the spread between the three-month LIBOR and the Fed funds rate contracted. Thus, because of narrower spreads and lower volumes, securities lending revenues are likely to decline during the third quarter.

Moreover, while foreign exchange volatility increased marginally during the third quarter, foreign exchange trading volumes declined sequentially (mainly due to seasonality). Thus, because of lower volumes, foreign exchange trading revenues are likely to decline during the to-be-reported quarter.

Nevertheless, the consensus estimate for AUM shows that this component will likely increase during the quarter under review. The Zacks Consensus Estimate for AUM for the third quarter is $1.8 trillion, reflecting marginal growth sequentially. Further, the Zacks Consensus Estimate for total assets under custody and administration of $34.2 trillion reflects growth of 1.7% sequentially. Thus, investment management and performance fees are likely to be slightly positively impacted, driven by expected growth in assets.

Notably, the Zacks Consensus Estimate for fee revenues for the third quarter is $3.23 billion, reflecting nearly 1% rise sequentially.

Net Interest Revenue (NIR) Growth to Provide Support: While loan growth during the third quarter was not very impressive, a modest improvement in the lending scenario, along with benefits of rising interest rates, is expected to positively impact BNY Mellon’s NIR.

Moreover, management believes that any rate hike is likely to lead to an improvement in net interest margin (NIM) as well as NIR. Hence, improving margins, due to the increase in rates, are likely to more than offset the reduced size of balance sheet and lead to a modest increase in NIR.

Slight Rise in Expenses: Supported by the company’s cost-saving initiatives, expenses have been declining for the past few years. However, because of the impact of investment-related costs, overall expenses are expected to increase slightly in the third quarter, similar to the trend witnessed during the first half of the year.

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

According to our quantitative model, BNY Mellon is likely to beat the Zacks Consensus Estimate in the third quarter. 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 +0.03%.

Zacks Rank: BNY Mellon currently carries a Zacks Rank of 3.

Other Stocks That Warrant a Look

Here are a few other finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.

Ameriprise Financial, Inc. AMP is slated to release results on Oct 23. It has an Earnings ESP of +4.30% and currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

T. Rowe Price Group, Inc. TROW is scheduled to release results on Oct 25. It has an Earnings ESP of +0.78% and a Zacks Rank #2.

Ally Financial Inc. ALLY has an Earnings ESP of +0.50% and carries a Zacks Rank of 3. The company is also slated to release results on Oct 25.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
The Bank of New York Mellon Corporation (BK) : Free Stock Analysis Report
 
Ally Financial Inc. (ALLY) : Free Stock Analysis Report
 
Ameriprise Financial, Inc. (AMP) : Free Stock Analysis Report
 
T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research