“Armchair Trader Series” Recommendations
- Week Beginning -
Monday,  March 22, 2021

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO

"Trading Capital Management"



Options Trade - Bank of New York Mellon Corp (NYSE: BK) Calls

Thursday, March 25, 2021

** OPTION TRADE: Buy BK SEP 17 2021 50.000 CALLS at approximately $1.75. (Max. $1.90)

 Place a pre-determined sell at $3.50.

Also include a protective stop loss of $0.70.

Financials are off to a strong start in 2021, but one analyst said Wednesday the run for The Bank of New York Mellon Corp (NYSE: BK) may just be getting started. BK is experiencing global diversification efforts and prudent cost-control initiatives which are expected to keep supporting profitability.

After bouncing off the $39 region in late January, BK enjoyed a rally to a March 18 annual high of $47.76. Though the stock has been cooling off since that high, it’s on track to snap that three-day, while its 30-day moving average has stepped up as support. Longer term, BK is up around 62% year-over-year. 

The Upgrade.....

Bank of America analyst Michael Carrier upgraded Bank of New York Mellon Corp from Underperform to Buy and raised his price target from $43 to $50.

In the notes, Carrier said Bank of NY Mellon has improved earnings and revenue growth outlooks and an attractive valuation.

Carrier said the potential for rising interest rates coupled with the bank’s investments in strategic initiatives could drive growth upside in coming years. He estimates a 1% parallel shift in the yield curve could potentially increase the company’s EPS by more than 10%.

“We see an improving growth outlook in the Pershing/RIA market given investments and a shifting industry landscape; treasury, clearing, and collateral management given increasing issuance and shifting rates; asset management given an improving outlook for waivers and the potential for more interest in fixed income given higher yields and the run in equities; and digital currencies, given ongoing investments in that area,” Carrier said.

The Bank of New York Mellon Company Profile.....

The Bank of New York Mellon Corporation provides a range of financial products and services to in the United States and internationally.

The company operates through two segments, Investment Management and Investment Services. The Investment Service segment offers custody, accounting, exchange-traded funds services, middle-office solutions, transfer agency, services for private equity and real estate funds, foreign exchange, securities lending, liquidity/lending services, brokerage and data analytics, clearing, trading, investment, wealth and retirement solutions, technology and enterprise data management, corporate trust, depositary receipts, payments, receivables processing and payables management, trade finance and processing, and collateral management services.

Earnings…..

The Bank of New York Mellon last issued its quarterly earnings results on Tuesday, January 19th. The bank reported $0.96 earnings per share for the quarter, beating the consensus estimate of $0.91 by $0.05. The Bank of New York Mellon had a return on equity of 9.89% and a net margin of 23.09%. The firm had revenue of $3.84 billion during the quarter, compared to the consensus estimate of $3.84 billion. During the same period last year, the company earned $1.01 earnings per share. The company’s revenue was down 19.6% on a year-over-year basis. On average, sell-side analysts anticipate that The Bank of New York Mellon will post 3.96 earnings per share for the current fiscal year.

Influencing Factors…..

Looking at BK’s fundamentals, non-interest expenses have declined, witnessing a compound annual growth rate (“CAGR”) of 1% over the past three years (ended 2020), driven by the cost-saving efforts. Moreover, despite continued investments in technology, operating expenses are expected to remain manageable in the upcoming quarters as the company eliminates unnecessary management layers and automates processes.

Also, BNY Mellon’s balance sheet remains solid. Its decent earnings strength and robust liquidity position indicate that it will likely be able to continue meeting debt obligations in the near term, even if the economic situation worsens.

Moreover, now, with the Federal Reserve easing restrictions on capital distributions amid the virus-induced crisis, BNY Mellon authorized $625 million worth of share repurchases for first-quarter 2021, while maintaining the dividend payout at 31 cents per share. Given its earnings strength, the company is expected to continue enhancing shareholder value through efficient capital deployments.

Analysts Thoughts.....

Besides Bank of America several other equities analysts have recently commented on the company…..

  • Deutsche Bank Aktiengesellschaft lifted their price objective on The Bank of New York Mellon from $46.00 to $51.00 and gave the stock a “buy” rating in a report on Friday, December 18th.
  • Smith Barney Citigroup upgraded The Bank of New York Mellon from a “neutral” rating to a “buy” rating and lifted their price objective for the stock from $44.00 to $57.00 in a report on Monday, January 11th.
  • Barclays lifted their price objective on The Bank of New York Mellon from $54.00 to $59.00 and gave the stock an “overweight” rating in a report on Monday, January 4th.
  • Citigroup Inc. 3% Minimum Coupon Principal Protected Based Upon Russell upgraded The Bank of New York Mellon from a “neutral” rating to a “buy” rating and lifted their price objective for the stock from $44.00 to $57.00 in a report on Monday, January 11th.
  • Finally, Piper Sandler lifted their price objective on The Bank of New York Mellon from $40.00 to $47.00 and gave the stock a “neutral” rating in a report on Monday, January 11th.

One equities research analyst has rated the stock with a sell rating, seven have assigned a hold rating and eleven have assigned a buy rating to the company’s stock. The company has an average rating of “Buy” and a consensus target price of $47.03.

Summary.....

The decade-long bull market following the 2008 financial crisis was a difficult period for many banks and other financial stocks due to historically low interest rates and a climate of intense regulations. However, many financial stocks are now well capitalized, streamlined and poised for some major earnings growth in the cycle of rising interest rates following the pandemic downturn.

The Bank of New York Mellon has a 1-year low of $29.17 and a 1-year high of $47.76. The company has a debt-to-equity ratio of 0.65, a current ratio of 0.65 and a quick ratio of 0.65. The business has a fifty day moving average price of $43.74 and a 200-day moving average price of $40.10. The company has a market capitalization of $38.91 billion, a PE ratio of 9.73, and a PEG ratio of 1.38 and a beta of 1.07.