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Bank of New York Mellon Is Undervalued Compared to Its Peers

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Share price performance

So far in 2015, Bank of New York Mellon (BK) has slightly outperformed the financial sector. Year-to-date (or YTD), the stock has gained 0.54%. In comparison, the financial sector has fallen 5.4% during the year. The Financial Select Sector SPDR ETF (XLF) (IYG) (IYF) represents the US financial sector.

Shares of the company rallied 2.7% on October 20 after the company reported better-than-expected 3Q earnings.

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Analysts’ recommendations

On October 20, the stock closed at $41.25. With an average consensus price target of $46.30 and a median target estimate of $46, the stock is still at a discount of 11.0% to analysts’ expectations.

Among the 25 analysts following the stock, 12 have assigned “buy” ratings. BNY Mellon received two sell ratings and 11 “hold” ratings. Recently, Deutsche Bank (DB) and Bank of America (BAC) upgraded the stock to “buy” based on its cheap valuations compared to peers.

However, it must be noted that research brokerages have lowered estimated earnings per share (or EPS) in nine instances in the past four weeks. In the same timeframe, there have been just three upward revisions.

Valuations

Shares of the company trade at a price-to-book multiple of 1.25x. The average price-to-book multiple for custodian banks in the XLF ETF is 1.56x. The bank is the cheapest among its peer group in the XLF ETF.

Large-capped peers like State Street (STT) and Northern Trust (NTRS) are trading at price-to-book multiples of 1.49x and 1.92x, respectively.

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