The financial services industry is booming with the growing demand for wealth management and digital banking services coupled with the rising adoption of advanced technologies like AI and machine learning. Amid this, let’s find out if financial stocks Interactive Brokers (IBKR) and Bank of New York Mellon (BK) are poised for a first-quarter earnings surprise. Read more.
The financial services industry’s sustained growth and expansion can be attributed to the rising demand for fast and real-time fund transfers, surging use of digital banking services, growth in the wealth of high-net-worth individuals, increasing demand for alternative investments, 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 earnings this Tuesday, April 16, 2024. Investors could wait for a better entry point in these stocks before their earnings release.
Before delving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the financial services industry’s outlook.
Financial institutions, from banking and wealth management to insurance and brokerage firms, are poised to experience significant growth this year and beyond, driven by surging demand for financial services. The financial services market size is expected to reach $44.93 trillion in 2028, growing 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, heightened fraud and cyber risks, and the convergence of industries like the embedded finance trend, will require unprecedented agility from financial services leaders.
Moreover, the integration of AI and machine learning capabilities in digital asset management (DAM) solutions is one of the primary trends in the U.S. Also, the increased cloud adoption rate nationwide, which has accelerated due to the pandemic, is expected to drive companies’ digital assets, ultimately driving the adoption of DAM solutions.
The digital asset management market is estimated to total $11.41 billion by 2029, expanding at a CAGR of 14.2% during the forecast period (2024-2029). Meanwhile, the U.S. securities brokerage market is anticipated to grow at a CAGR of 4.2% to surpass $242.33 billion by 2029.
Now, let’s discuss the fundamentals of IBKR and BK in detail:
Interactive Brokers Group, Inc. (IBKR)
IBKR operates as a global automated electronic broker. It engages in the execution, clearance, and settlement of trades in stocks, options, futures, bonds, mutual funds, foreign exchange instruments, exchange-traded funds (ETFs), and cryptocurrencies. Additionally, the company provides custody, prime brokerage, securities, and margin lending services.
On April 11, IBKR unveiled High Touch Prime Brokerage and Global Outsourced Trading, exclusive new services to help select US hedge funds manage their businesses. High Touch Prime Brokerage equips Interactive Brokers to contend with large prime brokers while eliminating a potential barrier for hedge funds looking for a low-cost platform yet requiring a personalized service.
On February 28, IBKR introduced a next-generation trading platform: IBKR Desktop. It is a trading application for Windows and Mac that caters to today’s traders who seek simplicity but value Interactive Brokers’ robust trading tools. IBKR Desktop signifies 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 is trading at 2.60x, 65.8% lower than the industry average of 7.62x. However, the stock’s forward Price/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 trailing-12-month gross profit margin and ROCE of 90.34% and 18.66% are higher than the industry averages of 59.73% and 10.99%, respectively. However, the stock’s trailing-12-month net income margin of 13.57% is 42.4% lower than the industry average of 23.57%.
For the fourth quarter that ended December 31, 2023, IBKR’s adjusted net revenues increased 19.9% year-over-year to $1.15 billion. Its adjusted income before income taxes rose 23.8% from the year-ago value to $831 million. Its adjusted net income available for common stockholders was $164 million, up 21.5% from the previous year’s quarter.
In addition, the company’s adjusted EPS grew 16.9% year-over-year to $1.52.
Interactive Brokers is scheduled to release its first-quarter financial results on Tuesday, April 16, 2024, at nearly 4:00 pm (ET). Street expects IBKR’s revenue and EPS for the quarter (ended March 2024) to increase 14% and 20.8% year-over-year to $1.20 billion and $1.63, respectively.
In addition, analysts expect the company’s revenue for the fiscal year 2025 to increase 1.9% year-over-year to $4.91 billion, but its EPS is estimated to decrease marginally from the previous year to $6.49.
IBKR’s stock has gained 29.2% over the past six months to close the last trading session at $110.39. However, the stock has plunged 2.8% over the past five days.
IBKR’s POWR Ratings reflect its mixed outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
IBKR has a C grade for Growth, Value, Stability, Momentum, Sentiment, and Quality. In the Investment Brokerage industry, it is ranked #12 out of 20 stocks.
Click here to access all the IBKR ratings.
The Bank of New York Mellon Corporation (BK)
BK offers a wide range of financial products and services internationally. The company operates through Securities Services, Market and Wealth Services, Investment and Wealth Management, and other segments. It offers custody, trust and depositary, accounting, exchange-traded funds, middle-office solutions, and lending services.
On April 12, 2024, BK collaborated with Accenture (ACN), a prominent professional services company, to modernize financial services offerings with an initial focus on data management and analytics product development and delivery.
Leveraging ACN’s data, AI and platform engineering expertise with BK’s Extensive financial data and analytics will help accelerate the rollout of new services in private markets and wealth management technology while facilitating the expansion into new markets. This strategic partnership will bode well for both companies.
On April 9, BK announced a partnership of its short-term investment platform, LiquidityDirect, with Kyriba, a world leader in cloud treasury and financial solutions. This collaboration combines Kyriba’s scalable SaaS solution with BNY Mellon’s LiquidityDirect platform to boost liquidity performance and unlock enhanced cash 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 forward Price/Book 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 trailing-12-month ROCE and ROTA of 8.43% and 0.80% are lower than the industry averages of 10.99% and 1.09%, respectively.
For the fourth quarter that ended December 31, 2023, BK’s total revenue decreased 1.4% year-over-year to $4.31 billion. The company’s income before income taxes declined 72% from the prior year’s quarter to $359 million. Its net income and EPS came in at $300 million and $0.33, down 71.2% and 73% year-over-year, respectively.
BNY Mellon is set to report its financial results for the first quarter of 2024 on April 16, 2024. Analysts expect BK’s revenue for the quarter (ended March 2024) to grow marginally year-over-year to $4.40 billion. The consensus EPS estimate of $1.19 for the same period indicates an increase of 5.2% year-over-year.
For the fiscal year ending December 2024, Street expects the company’s revenue and EPS to grow 1.6% and 5.8% year-over-year to $17.78 billion and $5.34, respectively.
Shares of BK have surged 33.5% over the past six months to close the last trading session at $55.05. However, the stock declined 3.2% over the past five days.
BK’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.
The stock has a C grade for Quality, Value, Momentum, Sentiment, and Stability. BK is ranked #29 of 51 stocks in the Asset Management industry.
In addition to the POWR Ratings I’ve just highlighted, you can see BK’s ratings for Growth here.
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IBKR shares rose $2.06 (+1.87%) in premarket trading Monday. Year-to-date, IBKR has gained 33.28%, versus a 7.81% rise in the benchmark S&P 500 index during 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. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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