BNY Mellon Stock Is Trading 11% Below Its Fair Value

BNY Mellon stock (NYSE: BK) has gained 12% YTD as compared to the 4% rise in the S&P500 index over the same period. Further, at its current price of $51 per share, it is trading approximately 11% below its fair value of $57 – Trefis’ estimate for BNY Mellon’s valuation. The custody banking giant posted mixed results in the fourth quarter of 2022, with earnings beating the consensus but revenues missing the mark. It reported net revenues of $3.9 billion – down 2% y-o-y, primarily driven by a 14% drop in the total fee & other income. The fee & other revenues suffered due to lower investment management fees and a decrease in investment & other revenues from $107 million to -$360 million. That said, the negative impact was partially offset by a 56% jump in the net interest income (NII) driven by higher interest-earning assets and an improvement in the net interest margin. On the cost front, the non-interest expenses as a % of revenues increased in the quarter, leading to a 38% drop in the adjusted net income to $509 million. 

The company’s top line grew 3% y-o-y to $16.4 billion in FY 2022. It was driven by a 34% growth in the NII, partially offset by a 3% drop in the fee & other revenues. Further, the two key metrics – Assets under Management (AuM) and the Assets under Custody & Administration (AuC/A) reduced by 25% and 5%,  respectively, from the December 2021 levels. Altogether, the adjusted net income decreased 34% y-o-y to $2.36 billion. 

Moving forward, we expect the asset valuations to see some improvement in the subsequent quarters, helping with fee income. Overall, BNY Mellon’s revenues are forecast to touch $17.7 billion in FY2022. Additionally, the adjusted net income margin is likely to be around 22% in the year. It will likely result in an EPS of $4.98, which coupled with a P/E multiple of just above 12x, will lead to a valuation of $57.