BNY's Tactical Innovations And Acquisitions Set To Boost Revenue And Transform Asset Management

Key Takeaways

• Strategic acquisitions and service innovations are expected to enhance revenue and market position by expanding solutions and technology integration.
  
• Efforts to streamline operations and leverage enterprise-wide capabilities aim to boost efficiency, improve margins, and drive client-focused growth.
  
• Market volatility, regulatory changes, and reliance on favorable conditions pose risks to BNY Mellon's revenue, earnings, and margins.

Catalysts

Provides a range of financial products and services in the United States and internationally.

• The acquisition of Archer, a technology service provider for managed accounts in asset and wealth management, is expected to enhance BNY's capabilities and distribution. This should expand revenue opportunities by streamlining operations and introducing new investment products.
  
• The introduction of new services like Alts Bridge aims to capitalize on the fast-growing alternatives market for wealth advisors, potentially increasing revenue through enhanced client solutions and data integration.
  
• The transition to a Platforms Operating Model is designed to improve efficiency and foster innovation across BNY, potentially improving net margins through cost reductions and better service capabilities.
  
• Initiatives such as the Commercial Liftoff program and an enterprise approach to client coverage are expected to drive revenue growth by offering holistic services and leveraging BNY’s full suite of businesses.
  
• Ongoing strategic investments in scaling technologies for Asset Servicing and Global Clearing, particularly in the ETF market, are positioned to capture significant market growth and client inflows, contributing to overall revenue gains.

Bank of New York Mellon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bank of New York Mellon's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.8% today to 26.2% in 3 years time.
• Analysts expect earnings to reach $5.2 billion (and earnings per share of $7.63) by about November 2027, up from $3.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.3x on those 2027 earnings, down from 16.8x today. This future PE is lower than the current PE for the US Capital Markets industry at 24.2x.
• Analysts expect the number of shares outstanding to decline by 2.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.03%, as per the Simply Wall St company report.

Bank of New York Mellon Future Earnings Per Share Growth

Risks

• Increased market volatility and potential geopolitical tensions could negatively impact revenue and margins.
  
• Impending regulations and fiscal deficits might disrupt BNY's strategic pursuits, affecting earnings.
  
• Heavy reliance on favorable market conditions and asset valuations suggests vulnerability to economic downturns, impacting revenue growth.
  
• Integration risks with the Archer acquisition could lead to unexpected expenses impacting net margins.
  
• Pressure on net interest income due to changing interest rates may challenge earnings stability.

Valuation

• The analysts have a consensus price target of $80.79 for Bank of New York Mellon based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $90.0, and the most bearish reporting a price target of just $70.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $19.9 billion, earnings will come to $5.2 billion, and it would be trading on a PE ratio of 13.3x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $77.61, the analyst's price target of $80.79 is 3.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.