The Factors Behind BNY's Stock Surpassing Expectations
The prominent custody banking firm, BNY share (NYSE: BK), has seen substantial growth this year, increasing by 57% since the start of January, surpassing the S&P 500's return by almost double during the same period. In contrast, rival company BlackRock share (NYSE: BLK) has risen by 34% year-to-date. With the prospect of regulation relaxation under President-Elect Trump, banking institutions could potentially profit. Check out How is US Bancorp Share Performing?
What's happening with BNY share?
Although the stock has demonstrated strong performance this year, it has experienced considerable fluctuations in the recent past. The stock yielded returns of 41% in 2021, dipped by 19% in 2022, and bounced back by 19% in 2023. In contrast, the Trefis High-Quality Portfolio, comprising 30 stocks, is less volatile. Moreover, it has outperformed the S&P 500 annually over the same period. Why is that? Ultimately, HQ Portfolio stocks delivered better returns with less risk compared to the benchmark index, resulting in a smoother ride as evident in HQ Portfolio performance metrics. Considering the current uncertain macroeconomic situation, involving interest rate cuts and multiple conflicts, could BK face a similar situation as it did in 2023, underperforming the S&P during the next 12 months, or will it recover?
BNY, whose primary operations include custody, treasury services, markets, wealth, and investment management, outperformed market expectations during the third quarter of 2024. Total revenue surged by 5% year-over-year to $4.6 billion. The growth is attributed to the company's asset expansion under custody and administration by 14% year-over-year to $52 trillion, followed by a 18% hike in Assets under Management to $2.1 trillion. The increase in assets is due to higher asset valuations and inflows. This positively impacts BNY as it generates fees based on the amount of assets clients keep with the bank. Consequently, fee-based revenue increased by about 5%, while net interest-related revenue grew by 3%, driven by improved investment securities portfolio yields and balance sheet expansion. Profits grew even faster. Earnings per share stood at $1.50, increasing by 22% year-over-year, as non-interest-related expenses remained stable compared to the previous year. The company has been streamlining operations to cut costs while focusing on higher-margin businesses.
So what does the future hold for BNY share? Since the U.S. election, the markets have displayed optimism, with Donald Trump projected to serve another term as President. Investors believe that the Trump administration's emphasis on deregulation can lead to a more lenient regulatory approach to financial oversight compared to the Biden administration. This could potentially benefit banks such as BNY in several ways. For instance, decreased compliance costs could enhance profitability. Furthermore, higher potential economic growth coupled with reduced interest rates should benefit custody banks like BNY, supporting asset prices. Additionally, Trump has advocated for tax cuts, which could increase banks' bottom lines. We estimate BNY's share price to be around $76, roughly equal to the market price. Check out our analysis of BNY’s Pricing.**
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- The recent valuation of BNY Mellon's stock indicates a promising outlook, given its increased revenue of $4.6 billion during the third quarter of 2024, driven by higher asset valuations and inflows.
- With the potential deregulation under President-Elect Trump's administration, BK valuation could further improve, benefiting from decreased compliance costs, higher economic growth, reduced interest rates, and potential tax cuts.
