Shares of recently-merged asset custodian BNY Mellon (BK) look attractive compared to those of its competitors, Barron's says. Despite a run up to $49/share from $40 in September, shares trade at just 16x 2008 earnings - equal to or below that of rivals State Street (STT, 16x) and Northern Trust (NTRS, 19x). Factor in BNY Mellon's potential post-merger efficiencies (est. 9%) and "enviable long-term prospects," and shares look even more reasonable.
BNY Mellon's $55 billion market cap makes it twice as big as STT and NTRS; of $140 trillion in fixed-income and equity assets globally, BNY Mellon manages $21 trillion. Besides size, Barron's says the company also wields a more lucrative asset-management fee stream than its competitors. It has managed to maintain an impressive 98% customer retention rate in asset servicing post-merger. Barron's also likes its lack of risky credit-market exposure: less than 5% of BNY Mellon's service revenue comes from CDOs.
CEO Robert Kelly says the market's underestimating upcoming rapid growth in BNY Mellon's asset-management and non-U.S. profits. Barron's says shares should appreciate even faster than the firm's 15% annual earnings growth.