On Friday, Goldman Sachs reiterated its Buy rating on shares of Bank of New York Mellon (NYSE:BK) with a steady price target of $80.00. The financial institution reported third-quarter 2024 earnings per share (EPS) of $1.52, excluding certain one-time expenses such as severance, litigation reserves, and FDIC special assessment charges. This figure surpassed the consensus estimate of $1.42 per share and Goldman Sachs' own estimate of $1.47 per share.
Bank of New York Mellon's performance was bolstered by a combination of higher net interest income (NII), slightly increased fee revenues, and stronger investment and other revenues. The company's pre-tax income margin improved by approximately 200 basis points year-over-year to 33%. Pre-provision net revenue (PPNR) rose 14% year-over-year, exceeding consensus estimates by 7%.
The firm's NII of $1,048 million exceeded expectations, primarily due to a surge in repo activity and better-than-anticipated deposit trends. Even with normalized repo activity, the bank's NII is estimated to be around $1 billion per quarter. Fee revenue growth was driven by heightened client activity in several areas, including Clearance and Collateral Management, Treasury Services, Investment Management, and foreign exchange trading.
Expenses remained flat year-over-year at $3,075 million, aligning with the revenue growth. Investment and other revenues also contributed to the earnings beat, with a significant portion coming from other trading revenues. Bank of New York Mellon's capital ratios showed strength, with the Common Equity Tier 1 (CET1) ratio increasing by 50 basis points quarter-over-quarter to 11.9%, and Tier 1 Leverage ratio rising by 20 basis points to 6.0%.
The company executed $725 million in buybacks, which, while strong, was slightly below the $750 million anticipated by Goldman Sachs. The firm's consistent operational efficiency, stable net interest income, and robust capital returns were highlighted as key factors in its performance. Goldman Sachs also noted that the market might be undervaluing the bank's fee growth potential, which could lead to sustained earnings growth and further upside for the stock in the coming years.
In other recent news, BNY reported a 16% boost in Q3 profits, with assets exceeding $50 trillion for the first time. This increase was attributed to higher investment service fees and a significant growth in assets under custody and administration. Notably, the bank's net interest income saw an unexpected rise of 3%, countering analysts' predictions of a 1.3% decline.
CFRA raised the price target on BNY shares to $81.00, maintaining a Buy rating, citing potential for increased profitability driven by revenue growth and wider margins from its restructuring and new strategy. Deutsche Bank also upgraded BNY stock from Hold to Buy, lifting the price target to $80.00, suggesting potential for revenue growth.
Moreover, BNY announced the acquisition of Archer Holdco, LLC, a technology-driven managed account solutions provider, expected to be completed in the fourth quarter of 2024. The bank also agreed to a $5 million settlement with the U.S. Commodity Futures Trading Commission (CFTC) over swap transaction-related issues. These are the recent developments in BNY's operations.
InvestingPro Insights
Bank of New York Mellon's strong performance, as highlighted in the article, is further supported by real-time data and insights from InvestingPro. The company's market capitalization stands at $54.94 billion, reflecting its significant presence in the financial sector. With a P/E ratio of 14.04 (adjusted for the last twelve months as of Q2 2024), BNY Mellon appears to be trading at a reasonable valuation relative to its earnings.
InvestingPro Tips reveal that BNY Mellon has raised its dividend for 13 consecutive years, demonstrating a commitment to shareholder returns that aligns with the strong buyback execution mentioned in the article. This is further reinforced by the company's impressive dividend growth of 27.03% over the last twelve months. The stock's strong performance is evident in its 82.48% price total return over the past year, and it's currently trading near its 52-week high, which corroborates the positive outlook presented by Goldman Sachs.
Investors seeking more comprehensive analysis can access 12 additional InvestingPro Tips for BNY Mellon, offering deeper insights into the company's financial health and market position.
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