As of July 18, 2023, the Bank of New York Mellon Corp (BK, Financial) has experienced a 4.11% increase in its stock price, reaching $45.33 per share. With a market cap of $35.8 billion and sales of $16.5 billion, the company's EPS stands at $3.16. According to GuruFocus, the GF Value of the stock is $49.95, suggesting that the stock is fairly valued.
Bank of New York Mellon is a leading global investment company, servicing financial assets throughout the investment lifecycle. With a presence in 35 countries and over 100 markets, it offers financial services to institutions, corporations, and individual investors. As the world's largest global custody bank, it manages approximately $44.3 trillion in assets under custody and administration (as of Dec. 31, 2022). The company also boasts an asset-management division that handles around $1.8 trillion in assets.
Understanding the GF Value
The GF Value is a unique metric that estimates a stock's intrinsic worth, based on historical trading multiples, past performance and growth, and future business performance projections. When a stock's price significantly exceeds the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if the price is significantly below the GF Value Line, the future return will likely be higher. Given that Bank of New York Mellon's stock price aligns closely with its GF Value, the long-term return of its stock is likely to be close to its business growth rate.
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Financial Strength and Profitability
Investing in financially strong companies can minimize the risk of permanent capital loss. A company's financial strength can be gauged by parameters like the cash-to-debt ratio and interest coverage. Bank of New York Mellon's cash-to-debt ratio stands at 4.04, ranking lower than 54.5% of companies in the Asset Management industry. This suggests a relatively weak balance sheet.
Profitability is another crucial factor for investors. A company with high profit margins generally offers better performance potential. Bank of New York Mellon has been profitable for 10 out of the past 10 years. However, its operating margin of 0% is lower than most companies in the Asset Management industry, indicating average profitability.
Growth and ROIC vs WACC
Company growth is closely correlated with long-term stock performance. Bank of New York Mellon's 3-year average annual revenue growth is 4.9%, ranking better than 51.69% of companies in the Asset Management industry. However, its 3-year average EBITDA growth rate is 0%, which is lower than most of its competitors.
Another way to evaluate a company's profitability is by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Unfortunately, Bank of New York Mellon's ROIC is 0, while its WACC stands at 10.05, suggesting the company is not generating sufficient returns on its invested capital.
Conclusion
In conclusion, Bank of New York Mellon is estimated to be fairly valued. Despite its poor financial condition and average profitability, its growth rates are competitive within the Asset Management industry. For a more comprehensive understanding of Bank of New York Mellon's financials, check out its 30-Year Financials here.
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