Analyst: Concerns About Bank Of New York Mellon's Investment Spend Overblown

Bank of New York Mellon Corp BK shares shed 4.4 percent  Thursday following the release of its fiscal year fourth quarter results amid concerns about investment spending.

The Analyst

Morgan Stanley analyst Betsy Graseck upgraded shares of Bank of New York Mellon from Equal-weight to Overweight and increased her price target from $60 to $64.

The Thesis

The company's tech-focused CEO Charles Scharf understands the significance of digital investments to drive the next leg of operating leverage in the custody space, Graseck said in a Friday note.

Scharf announced on the earnings call that the company plans to reinvest a vast majority of the tax benefit into the business in 2018, which unnerved traders, the analyst said.

Making the case for tech investing, Graseck said the trust banks now are looking at the next big wave of Fin-Tech disruption, namely corporate payments. The firm also noted acceleration in competition over the past year amid the increase in crypto valuation.

Additionally, the Clearing House's launch of real time payments this spring should provide impetus for increased tech spending, according to Graseck

Morgan Stanley expects more details on the planned investment spending at the company's Investor Day on March. As such, the firm increased its 2018 and 2019 earnings per share estimates by 4 percent and 5 percent, respectively, citing lower taxes.

Price Action

Bank of New York Mellon shares are up over 20 percent over the past year.