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Why BNY Mellon (BK) Stock Could Disappoint in Q1 Earnings


The Bank of New York Mellon Corporation BK is scheduled to report first-quarter 2017 results on Apr 20, before the market opens.

Last quarter, BNY Mellon’s adjusted earnings lagged the Zacks Consensus Estimate by a penny, primarily due to a rise in allowance for loan losses. Also, lower foreign exchange and other trading revenues were the downsides. However, higher total revenue and lower expenses were the tailwinds.

Following the earnings lag, shares of the company fell nearly 2% in the last three months (ended Mar 31).

Nonetheless, analysts maintained a neutral stance on BNY Mellon’s earnings in the to-be-reported quarter. The Zacks Consensus Estimate of 80 cents remained stable in the last 30 days. However, the figure represents year-over-year growth of 8.1%.

Also, BNY Mellon has a decent earnings surprise history, as is evident from the chart below:

Bank Of New York Mellon Corporation (The) Price and EPS Surprise

Bank Of New York Mellon Corporation (The) Price and EPS Surprise | Bank Of New York Mellon Corporation (The) Quote

Factors to Influence Q1 Results

We believe that the Dec 2016 rate hike should have had a positive impact on BNY Mellon’s margins in the first quarter. Moreover, management was of the opinion that any future rate hikes will lead to further improvement in margins. Based on this expectation, we expect the earlier-than-expected Mar 2017 rate hike to also have some positive impact on margin in the quarter.

The company believes that improving margins will more than offset the reduced size of balance sheet, thereby a modestly increase in net interest revenue is expected in the to-be-reported quarter. Further, we believe that lower premium amortization will have some positive impact on revenues.

Also, management expects its investment and other income to be in the range of $60-$80 million in the first quarter.

Notably, with a 50 bps increase in Fed rates, the company recovered about 70% of its fee waivers. The latest rate hike might have also helped it to recover its fee waivers to some extent for the just completed quarter.

On the expense front, management expects compensation expense in the first quarter to be up slightly on a sequential basis. This is because, staff expenses are generally impacted by the acceleration of long-term incentive compensation expense through employees who are eligible for retirement that typically takes place in the first quarter.

Earnings Whispers

According to our proven model, it is less likely that BNY Mellon will be able to beat the Zacks Consensus Estimate this time around, as it does not have the right combination of two key components. Note that a stock with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) has significantly higher chances of beating estimates.

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

Zacks ESP: The Earnings ESP for BNY Mellon is -1.25%. This is because the Most Accurate estimate of 79 cents is below the Zacks Consensus Estimate of 80 cents.

Zacks Rank: BNY Mellon’s Zacks Rank #3 increases the chance of an earnings beat. However, we also need to have a positive ESP to be sure of a positive earnings surprise.

Stocks That Warrant a Look

Here are some finance stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.

Ameriprise Financial, Inc. AMP is slated to release results on Apr 24. It has an Earnings ESP of +0.79% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zions Bancorporation ZION has an Earnings ESP of +1.85% and carries a Zacks Rank #3. The company is also slated to release results on Apr 24.

Lazard Ltd LAZ is scheduled to release results on Apr 27. It has an Earnings ESP of +6.41% and carries a Zacks Rank #2.

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