- BNY Mellon stock is up 8% since it released Q4 earnings.
- The custody bank's stock has returned 50% over the past year.
- Is BNY Mellon stock a buy?
Can it Continue to Outperform?
Over the past three days, investors have been inundated with news about banks stocks, as they are the first to report every quarter.
With pretty much all of the major banks having reported their Q4 results as of Friday afternoon, one could surmise that it was a pretty solid quarter for banks, as most banks saw big earnings spikes.
The KBW Nasdaq Bank Index, which tracks the performance of large banks, rose about 7% this week due to the overall strong earnings results.
But one stock stood out, getting the biggest post-earnings bump – Bank of New York Mellon (NYSE:BK), more commonly called BNY Mellon. It has climbed about 8% since Wednesday morning, trading at around $83 per share.
Not Your Typical Bank
BNY Mellon is different from most banks in that it is a custody bank that holds assets far large institutions, corporations, pensions, and investment managers, including their mutual fund and ETFs assets. As the custodian of these assets, they keep them safe and provide various services, like asset servicing, accounting, securities lending, clearing, flows, etc. For these services they charge fees, which are often based on asset levels. It is the largest custodian in the country with some $52 trillion in assets under custody.
BNY Mellon also has an asset management business of its own, with about $2 trillion in assets under management. But its custody business generates the bulk of its revenue.
So, unlike traditional banks, it is not a major lender, so it does not have the type of credit risk from unpaid or defaulted loans and is less dependent on interest rates and income. While it does hold assets, they aren’t consumer or business deposits, they are assets from large corporations and entities. The massive amounts of assets are considered sticky, because they are complex and difficult to move and there are only a handful of players big enough to service them.
Thus, BNY Mellon has carved out a strong niche for itself and it has been able to navigate and outperform in all different types of markets.
Record Revenue and Net Income
But the past two years in particular have been tremendous for BNY Mellon, as the stock markets have gained more than 20% for two years in a row – the first time that has happened since the dotcom boom. This has led to rising asset totals, which have led to higher fees, and more revenue for BNY Mellon.
In Q4, assets under custody rose about 10% to $52 trillion. Total revenue grew 11% to $4.8 billion in the quarter, while fee revenue accounted for $3.5 billion of that amount. Fee revenue was up about 9%, mirroring the rise in custody assets. Net interest income accounted for $1.2 billion in revenue, up 8%.
Net income spiked to $1.1 billion, or $1.54 per share. On an adjusted basis, earnings were $1.72 per share, which was 33% higher than they were in the same quarter a year ago. It also easily beat estimates of $1.56 per share.
For all of 2024, BNY Mellon had record revenue of $18.6 billion, up 5% year over year, and record net income of $4.5 billion, up 38% year over year.
Is BNY Mellon stock a Buy?
The outlook for BNY Mellon remains good heading into 2025. The company guided for $4.3 billion in NII in 2025, which would be up mid-single digits in terms of percentage. Fee revenue is predicted to be up in 2025 from $13.6 billion in 2024, but the firm tied no percentage gain to it. Further, expenses are anticipated to rise just 1% to 2% for the year.
Further, BNY Mellon has targeted a 33% pre-tax margin, which would be up from 31% in 2024.
“We launched a new commercial coverage model, developed new products and solutions for our clients, completed a brand refresh, announced and closed our first acquisition in several years, and commenced the phased transition to our strategic platforms operating model,” President and CEO Robin Vince said in the earnings release. “We also continued to invest in our culture and attracted top talent to further strengthen our team. We enter 2025 with strong momentum, on the right path to unlock the opportunity embedded in our company.”
BNY Mellon stock garnered about a half dozen price target upgrades from major analysts after the earnings release. Both Goldman Sachs and KBW bumped their price targets for BNY Mellon to $96 per share, while Truist raised it to $93 per share.
From its current share $83 per share price, that would be a 12% to 16% return. With a still reasonable valuation, even after a 50% return over the past year, BNY Mellon stock remains a solid and stable option in uncertain times.