KBW Upgrades Bank NY Mellon To Outperform, Bullish On Fundamentals And Benefits From Possible FFR Rate Hike

Bank of New York Mellon Corp (NYSE: BK) reported robust results for Q3, while issuing a better earnings guidance going forward.

Brian Kleinhanzl of Keefe, Bruyette & Woods upgraded the rating on the company from Market Perform to Outperform, while raising the price target from $48 to $50.

Fundamentals Solid

“BK repositioned the balance sheet to improve the margin and we expect the margin to stabilize at the higher level—boosting earnings materially versus our prior forecast,” Kleinhanzl mentioned.

The analyst expects the stock to outperform, driven by earnings that beat the consensus forecasts in 2017 and 2018, with the shares moving up as the consensus expectations are raised.

Kleinhanzl believes Bank of New York Mellon’s current valuation is attractive, given the expectations for earnings growth and returns.

Related Link: Morgan Stanley Upgrades Bank of New York Mellon Corporation

Fed Rate Hike

While an earlier-than-anticipated rate hike by the Fed could provide additional upside to the EPS estimates, investors are not paying a premium for such rate sensitivity at the current share price.

In addition, the analyst believes that the stock has downside protection, with 8.5 percent cash-on-cash yield expected in 2017, and if the shares do decline, Bank of New York Mellon would “still outperform given the solid shareholder return and less credit focused balance sheet.”

The EPS estimates for 2016, 2017 and 2018 have been raised, driven by a higher net interest margin than the previous estimate.

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