• Wondering if BNY is still worth a closer look after its run, or if most of the value is already reflected in the share price? This article breaks down what the current price might be implying.
• Bank of New York Mellon Corporation's stock recently closed at US$139.43, with returns of 0.2% over 7 days, 5.4% over 30 days, 19.1% year to date and 60.3% over the last year. The 3 year return is around 3x and the 5 year return is just over 2x.
• Recent headlines around BNY have focused on its role as a large custodian and asset servicing bank, including ongoing commentary about how it fits into global capital markets and financial infrastructure. Together with ongoing discussion of banks' capital strength and business mix, this context helps frame how investors are thinking about BNY's risk and earnings profile at today's price.
• On Simply Wall St's valuation framework, Bank of New York Mellon Corporation currently scores 2 out of 6 on the undervaluation checks. The rest of this article will compare different valuation approaches for BNY and then circle back to an even more complete way to think about what the stock might be worth.

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 is expected to generate above the return that shareholders require, based on the equity cost. Those surplus profits are then capitalised to arrive at an estimate of what the stock might be worth today.

For BNY, the model uses a Book Value of US$57.48 per share and a Stable EPS of US$9.98 per share, based on weighted future Return on Equity estimates from 7 analysts. The Average Return on Equity is 15.38%, compared with a Cost of Equity of US$6.02 per share. That gap feeds into an Excess Return of US$3.96 per share and a Stable Book Value of US$64.86 per share, based on estimates from 6 analysts.

Putting those inputs together, the Excess Returns framework arrives at an intrinsic value of about US$133.81 per share for BNY. Against the recent market price of US$139.43, this implies the stock is around 4.2% overvalued, which is a relatively small gap.

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 consistently profitable company like Bank of New York Mellon Corporation, the P/E ratio is a practical way to think about value because it links what you pay directly to the earnings the company is generating today.

What counts as a “normal” P/E depends on what investors expect for future earnings growth and how much risk they see in those earnings. Higher expected growth or lower perceived risk usually supports a higher P/E, while slower growth or higher risk tends to justify a lower P/E.

BNY currently trades on a P/E of 16.73x, compared with an industry average P/E of 39.81x for Capital Markets companies and a peer average of 21.14x. Simply Wall St’s Fair Ratio for BNY is 15.71x. The Fair Ratio is a proprietary estimate of what the P/E “should” be, given factors such as earnings growth, industry, profit margin, market cap and company specific risks.

This makes the Fair Ratio more tailored than a simple comparison with peers or the broad industry, which might have very different growth and risk profiles. With BNY’s actual P/E only around 1x above the Fair Ratio, the stock screens as slightly expensive on this metric.

Result: OVERVALUED

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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. Narratives on Simply Wall St help you turn your view of Bank of New York Mellon Corporation into a clear story that links the business, a forecast and a fair value. They then compare that fair value with today’s price and keep updating when fresh news or earnings arrive. For example, one BNY Narrative in the Community might focus on expanding digital capabilities and higher fee based services and land near the US$150 analyst target. A more cautious Narrative that leans on risks like fee pressure or digital disruption might anchor closer to US$120. You can then easily see where your own view sits on that spectrum.

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.