The financial services industry is booming with growing demand for wealth management and digital banking services, as well as increasing adoption of advanced technologies such as AI and machine learning. With this in mind, let’s find out whether financial stocks Interactive Brokers (IBKR) and Bank of New York Mellon (BK) are poised for a first-quarter earnings surprise. Read more.
The continued growth and expansion of the financial services industry is due to the increasing demand for fast and real-time money transfers, increasing usage of digital banking services, growing wealth of high-net-worth individuals, increasing demand for alternative investments, etc., and rapid urbanization.
Financial stocks Interactive Brokers Group, Inc. (IBKR) and The Bank of New York Mellon Corporation (BK) are scheduled to report their first quarter results this Tuesday, April 16, 2024. Investors may be waiting for a better time to enter these stocks before their earnings release.
Before we delve deeper into the fundamentals of these stocks, let’s discuss what shapes the outlook for the financial services industry.
Financial institutions, from banking and wealth management firms to insurance and brokerage firms, will see significant growth this year and beyond due to increasing demand for financial services. The size of the financial services market is expected to reach $44.93 trillion in 2028 and grow at a CAGR of 7.6% from 2024 to 2028.
In 2024, numerous technological changes, including the rise of generative AI, the transition to the cloud, increased fraud and cyber risks, and the convergence of industries such as the embedded finance trend, will require unprecedented agility from financial services leaders.
Additionally, integrating AI and machine learning capabilities into digital asset management (DAM) solutions is one of the major trends in the US. Additionally, the increasing nationwide cloud adoption rate, which has accelerated due to the pandemic, is expected to boost enterprise demand. digital assets, which ultimately drives the adoption of DAM solutions.
The digital wealth management market is estimated to be $11.41 billion by 2029, growing at a CAGR of 14.2% during the forecast period (2024-2029). Meanwhile, the U.S. securities brokerage market is expected to grow at a CAGR of 4.2% to over $242.33 billion by 2029.
Now let’s discuss the basics of IBKR and BK in detail:
Interactive Brokers Group, Inc. (IBKR)
IBKR operates as a global automated electronic broker. It is engaged in the execution, settlement and settlement of trades in stocks, options, futures, bonds, mutual funds, foreign exchange instruments, exchange-traded funds (ETFs) and cryptocurrencies. In addition, the company offers custody, prime brokerage, securities and margin lending services.
On April 11, IBKR introduced High Touch Prime Brokerage and Global Outsourced Trading, exclusive new services designed to help select U.S. hedge funds manage their businesses. High Touch Prime Brokerage enables Interactive Brokers to compete with large prime brokers while removing a potential hurdle for hedge funds seeking a low-cost platform but requiring personalized service.
On February 28th, IBKR introduced a next-generation trading platform: IBKR Desktop. It is a trading application for Windows and Mac aimed at modern traders who seek simplicity but appreciate Interactive Brokers’ robust trading tools. IBKR Desktop marks a new chapter for innovation and a focus on an intuitive user experience at Interactive Brokers.
In terms of trailing 12-month price/cash flow, IBKR trades at 2.60x, 65.8% lower than the industry average of 7.62x. However, the stock’s forward price-to-book and non-GAAP P/E multiples of 2.92 and 16.99 are 190.4% and 69.7% higher than the respective industry averages of 1.01 and 10.01.
IBKR’s gross profit margin and ROCE for the last 12 months are 90.34% and 18.66%, respectively, above the industry averages of 59.73% and 10.99%, respectively. However, the stock’s net profit margin of 13.57% in the last 12 months is 42.4% lower than the industry average of 23.57%.
In the fourth quarter ended December 31, 2023, IBKR’s adjusted net sales increased 19.9% year-over-year to $1.15 billion. Adjusted profit before income taxes increased 23.8% to $831 million compared to the previous year. Adjusted net income available to common shareholders was $164 million, up 21.5% from the prior-year quarter.
Additionally, the company’s adjusted earnings per share increased 16.9% year-over-year to $1.52.
Interactive Brokers is scheduled to report its first quarter financial results on Tuesday, April 16, 2024 at approximately 4:00 p.m. ET. Street expects IBKR’s revenue and earnings per share for the quarter ended March 2024 to rise 14% and 20.8% year-over-year to $1.20 billion and $1.63, respectively will rise.
Additionally, analysts expect the company’s fiscal 2025 revenue to rise 1.9% year-over-year to $4.91 billion, but earnings per share are expected to rise marginally year-over-year to $6.49. Dollars fall.
IBKR stock is up 29.2% over the past six months, closing the most recent trading session at $110.39. However, the stock has fallen 2.8% over the past five days.
IBKR’s POWR Ratings reflect the mixed outlook. The stock has an overall rating of C, which corresponds to a neutral grade in our proprietary rating system. POWR Ratings are calculated taking into account 118 different factors, each weighted optimally.
IBKR has a grade of C for Growth, Value, Stability, Momentum, Sentiment and Quality. It ranks 12 out of 20 stocks in the Investment Brokerage industry.
Click here to access all IBKR reviews.
The Bank of New York Mellon Corporation (BK)
BK offers a wide range of financial products and services internationally. The company operates in securities services, market and wealth services, investment and wealth management and other segments. It offers custody, trust and custody, accounting, exchange-traded funds, middle office solutions and lending services.
On April 12, 2024, BK partnered with Accenture (ACN), a leading professional services firm, to modernize its financial services offering, initially focusing on the development and delivery of data management and analytics products.
Leveraging ACN’s data, AI and platform engineering expertise with BK’s extensive financial data and analytics will help accelerate the launch of new services in private markets and wealth management technology, while facilitating expansion into new markets . This strategic partnership will bode well for both companies.
On April 9, BK announced a partnership of its short-term investing platform, LiquidityDirect, with Kyriba, a global leader in cloud treasury and financial solutions. This collaboration combines Kyriba’s scalable SaaS solution with BNY Mellon’s LiquidityDirect platform to increase liquidity performance and enable better liquidity visibility.
In terms of forward non-GAAP PEG, BK is trading at 1.02x, 19.8% lower than the industry average of 1.27x. However, the stock’s expected price-to-book ratio of 1.09x is 8% higher than the industry average of 1.01x.
BK’s trailing 12-month CAPEX/sales of 7.02% is 250.7% higher than the industry average of 2%. However, the stock’s ROCE and ROTA in the last 12 months are 8.43% and 0.80%, respectively, below the industry averages of 10.99% and 1.09%, respectively.
In the fourth quarter ended December 31, 2023, BK’s total revenue fell 1.4% year-over-year to $4.31 billion. The company’s profit before income taxes fell 72% to $359 million compared to the same quarter last year. Net income and earnings per share were $300 million and $0.33, respectively, down 71.2% and 73% year-over-year.
BNY Mellon is scheduled to report its first quarter 2024 financial results on April 16, 2024. Analysts expect BK’s revenue for the quarter (ending March 2024) to rise marginally year-over-year to $4.40 billion. The consensus EPS estimate of $1.19 for the same period suggests a year-over-year increase of 5.2%.
For the fiscal year ending December 2024, Street expects the company’s revenue and earnings per share to increase 1.6% and 5.8% year-over-year to $17.78 billion and $5.34, respectively become.
Shares of BK have risen 33.5% over the past six months, closing the most recent trading session at $55.05. However, the stock has lost 3.2% in the last five days.
BK’s mixed fundamentals are reflected in its POWR Ratings. The share has an overall C rating, which corresponds to a neutral value in our proprietary rating system.
The stock has a grade of C for quality, value, momentum, sentiment and stability. BK ranks number 29 out of 51 stocks in the Asset Management industry.
In addition to the POWR Reviews I just highlighted, you can see BK’s Growth Reviews here.
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IBKR shares rose $2.06 (+1.87%) in premarket trading on Monday. Year-to-date, IBKR has gained 33.28%, while the benchmark S&P 500 index has gained 7.81% over the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. With her fundamental approach to analyzing stocks, Mangeet aims to help retail investors understand the underlying factors before making investment decisions.
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