Higher Rates, Global Reach Aid BNY Mellon (BK), Costs Rise

The Bank of New York Mellon Corporation (NYSE:BK) is well poised for growth on the back ofsolid assets balance, organic growth efforts, global reach and higher rates. However, rising operating expenses remain a key concern.

BNY Mellon’s net interest revenues (NIR) have been witnessing a rise in the last few years, driven by loan growth and higher rates. NIR has witnessed a five-year (2014-2018) CAGR of 5.8%. The momentum is expected to continue as the company benefits from improving economy and higher interest rates.

Also, BNY Mellon is trying to expand in foreign markets. In 2018, the company’s non-U.S. revenues constituted 37% of total revenues. Over the next few years, non-U.S. revenues are expected to improve as the capital markets strengthen and public pension schemes become more sophisticated worldwide.

Moreover, given a solid capital position, the company is expected to continue enhancing shareholder value through efficient capital deployment activities.

Shares of this Zacks Rank #3 (Hold) company have rallied 6.8% so far this year, outperforming the industry's rise of 6.5%.



However, increase in operating expenses remains a major concern for BNY Mellon. Though its cost-saving initiatives helped lower costs between 2014 and 2016, the same increased at a three-year CAGR of 3.2% (2016-2018). Also, the company is expected to ramp up technology spending in 2019. Thus, increasing costs are likely to hurt bottom-line growth in the near term.

Also, BNY Mellon seems overvalued when compared with the broader industry. Its current price-to-book and price-to-earnings (F1) ratios are above the respective industry averages. The stretched valuation limits the stock’s upside potential.

Further, given the concerns, analysts seem to have a slightly bearish stance on BNY Mellon. The Zacks Consensus Estimate for earnings has marginally been lowered for 2019 and 2020, over the past 30 days.

Stocks Worth a Look

Some better-ranked stocks in the banking space areFifth Third Bancorp (NASDAQ:FITB) , M&T Bank Corporation (NYSE:MTB) and Webster Financial Corporation (NYSE:WBS) . All these stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings estimates for Fifth Third have been revised slightly upward for the current year over the past 60 days. Its share price has increased 4.8% over the past three months.

M&T Bank’s earnings estimates have remained stable for the current year over the past 60 days. Over the past three months, its shares have rallied9.3%.

Webster Financial’s Zacks Consensus Estimate for current-year earnings has been revised nearly 1% upward over the past 60 days. Over the past three months, its share price has risen 2.6%.

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