BNY Mellon (NYSE: BK) stock gained 16% YTD, as compared to the 17% rise in the S&P500 index. In sharp contrast, BNY Mellon’s peer BlackRock (NYSE: BLK) has delivered near zero return YTD. Overall, BK is scheduled to report its fiscal Q2 2024 results on Friday, July 12, 2024. We expect BNY Mellon to edge past the consensus estimates of revenues, while earnings will likely remain just below (match) the mark. The custody banking giant surpassed the street expectations in the last quarter, with revenues increasing 3% y-o-y to $4.5 billion. It was driven by a 6% rise in the total fee & other revenue, partially offset by an 8% decrease in the net interest income. Notably, the NII was down due to lower net interest margin. Further, both the Assets under Custody and Administration (AuC/A) and Assets under Management (AuM) posted positive growth in the quarter. We expect the total fee & other income and NII to improve in Q2. Our interactive dashboard analysis of BNY Mellon’s Earnings Preview has more details.

Amid the current financial backdrop, BK stock has seen extremely strong gains of 50% from levels of $40 in early January 2021 to around $60 now, vs. a similar change for the S&P 500 over this roughly 3-year period. However, the increase in BK stock has been far from consistent. Returns for the stock were 37% in 2021, -22% in 2022, and 14% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that BK underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 — in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the mega-cap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BK face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that BNY Mellon’s valuation is $65 per share, which is 8% above the current market price of $60.

(1) Revenues to top the expectations

BNY Mellon’s revenues grew 7% y-o-y to $17.5 billion in FY 2023. It was because of a 24% jump in the NII and a 2% increase in the total fee and other income.

  • The bank generates around 80% of the total revenues from total fees and other income. It improved 6% y-o-y to $3.5 billion in Q1, thanks to growth in investment services fees and investment revenues. We expect the Q2 results to be on similar lines.
  • The NII decreased by 8% in Q1 due to lower net interest margin. We expect it to see some growth in the second quarter.
  • Overall, we forecast BNY Mellon’s revenues to touch $18.02 billion in FY2024.

Trefis estimates BNY Mellon’s fiscal Q2 2024 revenues to be around $4.56 billion, 1% above the $4.52 billion consensus estimate.

(2) EPS is likely to remain just below (match) the consensus

BNY Mellon Q2 2024 adjusted earnings per share is expected to be $1.42 per Trefis analysis, almost 1% below the consensus estimate of $1.43. The bank’s adjusted net income grew 33% y-o-y to $3.15 billion in FY2023, primarily due to lower total expenses as a % of revenues. Further, the operating margin slightly increased in the first quarter of 2024, and we expect the same trend to continue in Q2. Overall, BNY Mellon is likely to report an annual EPS of $5.45 for the full year 2024.

(3) The stock price estimate is 8% higher than the current market price

We arrive at BNY Mellon’s valuation, using an EPS estimate of around $5.45 and a P/E multiple of close to 12x in fiscal 2024. This translates into a price of $65, which is 8% above the current market price.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

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