On Monday, Citi revised its stance on Bank of New York Mellon (NYSE:BK), downgrading the stock from Buy to Neutral and setting a price target of $65.00. The adjustment follows the company's second-quarter earnings, which surpassed consensus expectations. Bank of New York Mellon's shares increased by 5.2% on the day, contrasting with a slight decline in the broader bank index.
The bank's stronger-than-anticipated performance was driven by both net interest income (NII) and fee revenues, although this was somewhat counterbalanced by elevated revenue-related expenses. While the beat on the top line was significant against consensus estimates, it was more modest when compared to Citi's own projections, coming in just a cent higher.
Citi anticipates that the bank's 2024 and 2025 earnings estimates could see an upward revision of approximately 1-3%, buoyed by higher fees resulting from both market tailwinds and organic growth, in addition to an improved NII run rate. Management at Bank of New York Mellon has confirmed the full-year guidance, noting that the first half of 2024 NII has outperformed expectations, although the market may have already accounted for this positive development.
Despite management's progress towards medium-term goals, Citi believes that the current stock price reflects fair value, trading at 2.5 times tangible book value.
The firm's assessment is that the market has potentially set expectations above the guided NII decrease of around 10% year-over-year and operational leverage of over 0 basis points, with Citi's own expectations being slightly more optimistic. Based on this evaluation, the firm has moved to a Neutral rating on the stock.
In other recent news, BNY Mellon has been the subject of analyst attention following its strong second quarter earnings for 2024. Goldman Sachs (NYSE:GS) raised its price target for the company to $74, recognizing the bank's successful management strategies and improved profitability.
The firm highlighted BNY Mellon's commitment to controlling expenses and achieving positive operating leverage, with a focus on organic fee growth in its Pershing, Treasury Services, and Clearance/Collateral Management divisions.
The bank's second quarter earnings report revealed a 16% year-over-year increase in earnings per share, reaching $1.52. Total revenue also rose 2% year-over-year to $4.6 billion, a result of a 5% boost in investment services fees and a 16% increase in foreign exchange revenue. Evercore ISI also revised its price target for BNY Mellon to $66, maintaining an In Line rating.
BNY Mellon's strategic initiatives, including its focus on security services and the expansion of its wealth advisory platform, Wove, have been instrumental in this performance. The company returned over $900 million of capital to shareholders, reflecting its commitment to shareholder returns.
InvestingPro Insights
Following Citi's recent revision of Bank of New York Mellon (NYSE:BK) to a Neutral stance, it's worth noting that the bank has a strong track record of rewarding its shareholders, having raised its dividend for 13 consecutive years. InvestingPro data shows that the market cap of Bank of New York Mellon stands at $47.74 billion, with a price-to-earnings (P/E) ratio of 15.52, which is considered favorable when aligned with the company's near-term earnings growth. Additionally, the company's shares are trading close to their 52-week high, at 99.63% of that value.
InvestingPro Tips highlight that analysts have recently revised their earnings upwards for the upcoming period, which could indicate confidence in the bank's performance. Furthermore, the company's strong return over the last year, with a price total return of 57.42%, suggests robust investor confidence. For those seeking further insights, there are additional InvestingPro Tips available, which can be accessed through the InvestingPro platform for Bank of New York Mellon. Interested readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking a wealth of financial analysis and market data.
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