Goldman Sachs: Bank of New York Mellon Shares Have Modest Upside Potential North Of $60

Bank of New York Mellon Corp BK was downgraded by Goldman Sachs on Monday, with the sell-side firm saying it projects only a 5-percent upside to its established price target. 

The Analyst

Following Bank of New York Mellon's investor day, analyst Alexander Blostein downgraded the company from Buy to Neutral  and maintained a $60 price target. 

The Thesis

The consensus estimates for Bank of New York Mellon now reasonably reflect the company's near-term earnings per share growth profile in the low-to-mid teens per year, Blostein said in a Monday note. (See the analyst's track record here.) 

The bank guided flat earnings per share for 2018 relative to 2017 and EPS growth in the low-to-mid teens for 2019, suggesting EPS of $4 for 2018 and $4.50 for 2019, according to Goldman Sachs. 

At the same time, the stock's next-12-month P/E multiple is 13.7 times, a modest premium to long-term averages, Blostein said.

"We think BK's tailwind from higher rates (though lower than in the past), a clear commitment to positive operating leverage and growth in capital returns should drive a healthy EPS growth (1pt of revenue growth = 2-3pts of EPS growth, per management)," the analyst said. 

Goldman sees uncertainty around the bank's top-line organic growth, limiting P/E expansion over the next 12-24 months.

Overall organic fee growth is expected to remain rangebound at about 1 percent amid mixed trends in investment services and risks to investment management organic fee growth, Blostein said. 

Since Bank of New York Mellon was added to Goldman's Americas Buy List on Jan. 11, 2016, the shares of the company have gained 53 percent compared to the S&P 500's 45-percent advance, the analyst said. The firm now sees only 5-percent upside to its 12-month price target of $60.

The Price Action

Bank of New York Mellon shares are up about 19 percent over the past year.

The stock was down 1.35 percent at $56.46 at the time of publication Thursday. 

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