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On Tuesday, Citi updated its stance on Bank of New York Mellon (NYSE:BK), raising the price target to $75 from the previous $70 while keeping a Neutral rating on the stock. The adjustment comes after the bank reported robust third-quarter results. Despite an initial underperformance on the day of the announcement, with shares dropping 40 basis points versus the Bank Index (BKX) which gained 3%, the stock quickly recovered these losses the next trading day as the market processed the financial outcomes.
Bank of New York Mellon's management has increased its full-year net interest income (NII) forecast to a 5% year-over-year decrease, which is more optimistic than the consensus estimate of a 6.5% decline. Additionally, the management indicated that they do not foresee NII to pose a challenge in 2025, projecting an increase of 3-4% year-over-year for the next year.
The bank is expected to achieve positive operating leverage in 2025, around 130 basis points, benefiting from strong fee performance, particularly in Asset Servicing and Clearance and Collateral Management, alongside a demonstrated commitment to controlling expenses. Citi anticipates that Bank of New York Mellon will deliver returns in the low-to-mid twenties percent range for 2025, with a payout ratio of approximately 100%. The expected pace of share buybacks is estimated at around $800 million per quarter.
However, Citi's analysis suggests that these positive projections are already reflected in the current stock price, prompting the firm to reiterate its Neutral rating. The bank's performance and management's strategies for growth and cost management appear to align with the expectations already set by the market.
In other recent news, Bank of New York Mellon (BNY Mellon) has been the focus of numerous positive analyst adjustments following a robust third-quarter performance. Deutsche Bank, Barclays, Evercore ISI, and JPMorgan have all increased their price targets for BNY Mellon, with Deutsche Bank and JPMorgan maintaining a Buy and Overweight rating respectively, while Barclays and Evercore ISI retained an Overweight and In Line rating respectively.
BNY Mellon reported an impressive 22% year-over-year increase in earnings per share (EPS) to $1.50 and a 5% rise in total revenue, reaching $4.6 billion. The Clearance and Collateral Management (CCM) segment played a significant role in this revenue growth. The bank's management has also offered a fourth-quarter net interest income (NII) outlook of approximately $1 billion, aligning with earlier consensus estimates.
BNY Mellon has made strategic advancements with the acquisition of Archer, aiming to enhance its asset servicing capabilities. The bank also demonstrated a commitment to AI investment by establishing a dedicated hub with several hundred employees. These are recent developments that investors should be aware of.
In global news, China Construction Bank (OTC:CICHF) and Bank of China, among other major state-owned banks, have decided to reduce existing mortgage rates. This move aligns with directives from China's central bank and aims to stimulate the struggling property market and strengthen overall domestic demand within the world's second-largest economy.
InvestingPro Insights
Bank of New York Mellon's recent performance and future outlook align with several key metrics and insights from InvestingPro. The company's market capitalization stands at $55.63 billion, reflecting its significant presence in the financial sector.
One InvestingPro Tip highlights that BNY Mellon has raised its dividend for 14 consecutive years, which is consistent with the bank's strong financial position and commitment to shareholder returns mentioned in the article. This trend of consistent dividend growth supports Citi's projection of a high payout ratio for 2025.
Another relevant InvestingPro Tip notes that 10 analysts have revised their earnings upwards for the upcoming period. This aligns with the bank's improved full-year net interest income forecast and the positive outlook for 2025 discussed in the article.
The company's P/E ratio of 17.13 and the InvestingPro Tip suggesting it's trading at a high P/E ratio relative to near-term earnings growth corroborate Citi's view that positive projections are already reflected in the stock price, justifying their Neutral rating.
It's worth noting that InvestingPro offers 12 additional tips for Bank of New York Mellon, providing investors with a more comprehensive analysis of the company's financial health and market position.
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