Is the Bank of New York Undervalued?
June 27th, 2011
The share price of Bank of New York Mellon (BK), which I first wrote about on April 6, 2009, at a price of $28.16, pulled back during the winter, in healthy correction fashion, after pushing through $30 resistance. I still like the business model at this juncture.
Founded by Alexander Hamilton, the Bank of New York, a premier bank and wealth manager, has a stock that’s likely to reward patient investors. The bank’s 2011 revenue should rise 10% to 15%, then about 8% to 10% in 2012, on higher fees and improving margins. Asset management fees in its equities and fixed income business should record solid increases, on price gains in those markets and due to increased client deposits. New business wins add to the positive mix.
Further, Bank of New York provides services that enable institutions and individuals to move and manage their financial assets in more than 100 markets globally. The core of the bank’s business, custodial services, is doing just fine, with more than $16 trillion in assets under custody.
The First Call FY2011/FY2012 EPS estimates for BK are $2.53 to $2.97. Each EPS estimate looks about 5% low, according to my analysis.
Technically, as noted, BK uptrended from $28 to $32.50 during the winter before correcting about 10%, but the $30 level should provide decent support, and there’s scope to $40 and beyond.
2011 Outlook: I view this as a long-term play, but if you’re looking to sell BK within the year, it’s probably best to take your profits after it rises to $37 to $39, if it fails to clear $40.
Stock Analysis: I consider the Bank of New York Mellon to be a low-risk stock. If an investor has already purchased the company’s shares, I’d hold them. If not, I’d consider buying a 50% position in BK now; then buy another 25% in one month, if U.S. and global economic conditions don’t worsen substantially. Under any circumstance, I wouldn’t buy more than 75% of my BK position before June 2011, and I’d put a sell/stop loss at $17.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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