• If you are wondering whether Bank of New York Mellon Corporation is attractively priced right now, the starting point is understanding how its current share price lines up with several valuation checks.
• BNY's recent share price of US$114.66 comes after a 0.2% slip over the last week, a 3.7% decline over the last month, and a 2.0% decline year to date, set against a 41.5% return over the past year and very large gains over three and five years.
• Recent coverage has focused on BNY as a major player in global custody and asset servicing, with attention on how its scale and role in market infrastructure influence investor expectations. These themes help explain why the share price has been responsive to changes in sentiment around large financial institutions.
• BNY currently has a valuation score of 3 out of 6. The next sections break down what that means using common valuation approaches and point to a more complete way to think about value at the end of the article.

Approach 1: Bank of New York Mellon Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to generate above the return that shareholders require, and then converts those “extra” profits into an estimated per share value.

For BNY, the model starts with a Book Value of US$57.36 per share and a Stable EPS of US$9.57 per share, based on weighted future Return on Equity estimates from 8 analysts. The Average Return on Equity used in the model is 14.72%, compared with a Cost of Equity of US$6.45 per share, which leads to an Excess Return of US$3.11 per share.

These excess profits are assumed to grow into a Stable Book Value of US$64.98 per share, again sourced from weighted future Book Value estimates from 8 analysts. Putting these elements together, the Excess Returns valuation points to an intrinsic value of around US$112.74 per share.

Against the recent market price of US$114.66, BNY screens as about 1.7% overvalued, which is effectively in the fair value zone for most long term investors.

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 a profitable company like Bank of New York Mellon Corporation, the P/E ratio is a useful shorthand for how much you are paying for each dollar of earnings. It ties the share price directly to current profit, which is what ultimately supports dividends and buybacks.

What counts as a “normal” P/E ratio depends on how the market views a company’s growth prospects and risk profile. Higher expected growth or lower perceived risk can justify a higher multiple, while slower growth or higher uncertainty usually points to a lower one.

BNY currently trades on a P/E of 14.87x. That sits below the Capital Markets industry average P/E of 30.75x and below the peer group average of 21.71x. Simply Wall St’s Fair Ratio for BNY is 16.10x. This Fair Ratio is a proprietary estimate of what P/E might be reasonable once earnings growth, profit margins, industry, market cap and risk factors are all considered. Because it folds these company specific drivers into a single number, it can be more tailored than simple peer or industry comparisons. With the current P/E slightly below the Fair Ratio, the shares are described here as modestly undervalued on this measure.

Result: UNDERVALUED

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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 attach a clear story about Bank of New York Mellon Corporation to the numbers by linking your view of its future revenue, earnings and margins to a forecast, a Fair Value, and then a simple comparison with the current share price. All of this is available within an accessible tool on the Community page that automatically refreshes as new news or earnings arrive. One investor might build a Narrative around the higher Fair Value of about US$147 based on confidence in capital returns and new partnerships, while another might anchor on the lower Fair Value of about US$100 because they focus more on risks to fee revenue and market conditions. Seeing those different stories and values side by side can help you decide whether the current price looks high, low, or roughly in line with the assumptions you find more reasonable.

Do you think there's more to the story for Bank of New York Mellon? Head over to our Community to see what others are saying!

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.