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BNY Mellon stock (NYSE: BK) has gained 16% YTD which is at par with the S&P500 index over the same period. In comparison, BNY Mellon’s peer BlackRock (NYSE: BLK) is up 5% YTD. Overall, at its current price of $60 per share, BK is trading 7% below its fair value of $65 – Trefis’ estimate for BNY Mellon’s valuation.

Amid the current financial backdrop, BK stock has seen extremely strong gains of 50% from levels of $40 in early January 2021 to around $60 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. However, the increase in BK stock has been far from consistent. Returns for the stock were 37% in 2021, -22% in 2022, and 14% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that BK underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BK face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The custody banking giant outperformed the street estimates in the first quarter of 2024. It posted total revenues of $4.5 billion – up 3% y-o-y, driven by a 6% increase in the total fee & other revenue, partially offset by an 8% drop in the net interest income (NII). While total fee income benefited from growth in investment services fees and investment revenue, NII suffered due to a lower net interest margin. Notably, the Assets under Custody and Administration (AuC/A) rose by 5% y-o-y to $48.8 trillion, followed by a 6% rise in the Assets under Management (AuM) to $2 trillion. Altogether, it resulted in an adjusted net income of $982 million – up 7% y-o-y.

The company’s top line grew 7% y-o-y to $17.5 billion in FY 2023, because of a 24% rise in the NII and a 2% increase in the total fee and other income. Markedly, total fees and other income contribute more than 70% of the total revenues. In terms of costs, total expenses as a % of revenues witnessed a favorable drop in the year, leading to a 33% improvement in the adjusted net income to $3.15 billion.

Moving forward, we expect the second quarter results to be on similar lines. The consensus estimates for Q2 revenues and earnings are $4.52 billion and $1.42 respectively. Overall, BNY Mellon’s revenues are forecast to touch $18.02 billion in FY2024. Additionally, the adjusted net income margin will likely be around 22.5% in the year, resulting in an annual GAAP EPS of $5.45. This coupled with a P/E multiple of just below 12x, will lead to a valuation of $65.

[1] Returns as of 7/4/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.