• If you are wondering whether Bank of New York Mellon Corporation is still reasonably priced after its recent run, the next sections will walk through what the current market price could be implying about the stock.
• BNY last closed at US$135.02, with returns of 3.5% over the past week, broadly flat over the past month with a 0.1% decline, and gains of 15.4% year to date and 52.7% over the past year. The three and five year returns are very large at roughly 3x and 2x respectively.
• Recent headlines around BNY have focused on its role as a large global custodian bank and provider of investment services. Investors are paying close attention to how it positions itself in capital markets and asset servicing. These developments offer useful context when thinking about whether the current share price fairly reflects the company’s scale, business mix and risk profile.
• BNY currently has a valuation score of 2 out of 6. The rest of this article will compare what different valuation approaches suggest about the stock, then finish with a broader way to think about valuation that goes beyond the headline numbers.

Bank of New York Mellon scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Bank of New York Mellon Excess Returns Analysis

The Excess Returns model looks at how much profit a company can earn above its cost of equity, then capitalises those “excess” profits to estimate what the stock could be worth today.

For Bank of New York Mellon Corporation, the model uses a Book Value of US$57.48 per share and a Stable EPS of US$9.88 per share, based on weighted future Return on Equity estimates from 8 analysts. The Average Return on Equity is 15.23%, while the Cost of Equity is US$6.00 per share. That leaves an Excess Return of US$3.88 per share, which is the profit attributed to shareholders above the required return.

The model also assumes a Stable Book Value of US$64.86 per share, drawn from weighted future Book Value estimates from 6 analysts. Putting these inputs together, the Excess Returns framework produces an intrinsic value of about US$132.76 per share, which is around 1.7% below the recent market price of US$135.02. On this basis, the stock screens as slightly overvalued, but only by a small margin.

Result: ABOUT RIGHT

Bank of New York Mellon is fairly valued according to our Excess Returns, but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Approach 2: Bank of New York Mellon Price vs Earnings

For profitable companies like Bank of New York Mellon Corporation, the P/E ratio is a useful shortcut for how much investors are paying for each dollar of current earnings. It links directly to what you see in the income statement, which makes it easier to relate the share price to the business performance that is already being reported.

What counts as a “normal” P/E depends on how quickly earnings are expected to grow and how risky those earnings are. Higher expected growth or lower perceived risk can justify a higher multiple, while lower growth or higher risk tends to pull it down.

BNY currently trades on a P/E of 16.20x. That sits below the Capital Markets industry average of 40.02x and also below the peer group average of 21.44x. Simply Wall St’s Fair Ratio for BNY is 15.66x. This is its proprietary estimate of a suitable P/E given factors such as earnings profile, industry, profit margins, market cap and company specific risks. This Fair Ratio can be more useful than a simple peer or industry comparison because it attempts to match the multiple to BNY’s own characteristics rather than broad sector aggregates. With the actual P/E only slightly above the Fair Ratio, the stock looks broadly in line with this framework.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Bank of New York Mellon Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives on Simply Wall St let you turn your view of Bank of New York Mellon Corporation into a clear story that links the business, a financial forecast and a fair value. It then compares that fair value with the current price, updates it automatically when new news or earnings arrive, and shows how different investors can reasonably disagree. For example, one Narrative might lean toward the higher analyst target of US$156.00 based on confidence in digital platforms and fee based services, while another might sit closer to the lower US$120.00 target if the focus is more on fee pressure, digital disruption and dependence on supportive markets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.