Goldman Sachs maintains a Buy rating on Bank of New York Mellon shares From Investing.com

On Friday, Goldman Sachs reiterated its Buy rating on shares of Bank of New York Mellon (NYSE:) with an unchanged price target of $80.00. The financial institution reported third-quarter 2024 earnings per share (EPS) of $1.52, adjusted for one-time expenses such as severance payments, litigation provisions and FDIC special levies. This figure significantly exceeded the consensus estimate of $1.42 per share and Goldman Sachs’ own forecast of $1.47 per share.

Bank of New York Mellon’s strong performance was driven by higher net interest income (NII), slightly higher fee income and stronger investment and other income. The company’s pre-tax profit margin improved by a significant 200 basis points year-on-year to 33%. Pre-tax profit before loan loss provisions (PPNR) rose 14% year-on-year, beating consensus estimates by 7%.

The company’s NII of $1,048 billion was above expectations, primarily due to increased repo activity and better-than-expected 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 increased client activity across multiple areas, including clearing and securities administration, treasury services, investment management and equipment trading.

Expenses remained stable year-over-year at $3,075 billion, in line with revenue growth. Investment and other income also contributed to the profit jump, with a significant portion coming from other trading income. Bank of New York Mellon’s capital ratios are robust: the common equity Tier 1 capital ratio (CET1) increased by 50 basis points quarter-on-quarter to 11.9%, while the Tier 1 leverage ratio increased by 20 basis points to 6.0%.

The company completed $725 million in share repurchases, which, while impressive, was just shy of the $750 million expected by Goldman Sachs. The consistent operational efficiency, stable net interest income and solid returns on capital were highlighted as key factors in the company’s performance. Goldman Sachs also noted that the market may have underestimated the bank’s potential for fee growth, which could lead to continued earnings growth and further upside for the stock in the coming years.

In other recent news, BNY reported a 16% rise in quarterly profit, with assets under management topping $50 billion for the first time. This increase was attributed to higher investment services fees and significant growth in assets under custody and management. Of note, the bank’s net interest income unexpectedly rose 3%, defying analysts’ forecasts of an unexpected 1.3% increase.

CFRA raised the price target on BNY shares to $81.00 and maintained a Buy rating. The reason given was the potential for increased profitability through sales growth and broader margins as a result of the restructuring and new strategy. Deutsche Bank also upgraded BNY shares to “Buy” from “Hold” and raised the price target to $80.00, citing opportunities for revenue growth.

Additionally, BNY announced the acquisition of Archer Holdco, LLC, a technology-focused managed account solutions provider. Closing is expected in the fourth quarter of 2024. The bank also agreed to pay $5 million to the US Commodity Futures Trading Commission (CFTC) to resolve issues related to swap transactions. These are the latest developments in BNY’s business activities.

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 is $54.94 billion, reflecting its significant position in the financial sector. With a price-to-earnings (P/E) ratio of 14.04 (adjusted for the trailing twelve months ending Q2 2024), BNY Mellon appears to be reasonably valued relative to earnings.

InvestingPro Tips show that BNY Mellon has increased its dividend for 13 consecutive years, underscoring its commitment to shareholder returns and consistent with the strong repurchase activity noted in the article. This is further supported by the impressive dividend growth of 27.03% over the last twelve months. The stock’s strong performance is reflected in a total return of 82.48% over the past year and it is currently trading near its 52-week high, confirming Goldman Sachs’ positive view.

Investors seeking more comprehensive analysis can access 12 additional InvestingPro Tips for BNY Mellon, which provide deeper insight into the company’s financial health and market position.

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