Critical Review: State Street Corporation (STT) versus Bank Of New York Mellon Corporation (The) (BK)

State Street Corporation (NYSE: STT) and Bank Of New York Mellon Corporation (The) (NYSE:BK) are both large-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their institutional ownership, earnings, dividends, profitability, risk, valuation and analyst recommendations.

Analyst Recommendations

This is a breakdown of current recommendations for State Street Corporation and Bank Of New York Mellon Corporation (The), as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
State Street Corporation 1 9 3 1 2.29
Bank Of New York Mellon Corporation (The) 2 8 3 2 2.33

State Street Corporation presently has a consensus price target of $92.00, suggesting a potential downside of 2.17%. Bank Of New York Mellon Corporation (The) has a consensus price target of $53.43, suggesting a potential upside of 3.62%. Given Bank Of New York Mellon Corporation (The)’s stronger consensus rating and higher possible upside, analysts plainly believe Bank Of New York Mellon Corporation (The) is more favorable than State Street Corporation.

Earnings and Valuation

This table compares State Street Corporation and Bank Of New York Mellon Corporation (The)’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
State Street Corporation $10.63 billion 3.31 $2.02 billion $5.40 17.41
Bank Of New York Mellon Corporation (The) $15.55 billion 3.43 $3.49 billion $3.38 15.25

Bank Of New York Mellon Corporation (The) has higher revenue and earnings than State Street Corporation. Bank Of New York Mellon Corporation (The) is trading at a lower price-to-earnings ratio than State Street Corporation, indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

87.4% of State Street Corporation shares are held by institutional investors. Comparatively, 81.8% of Bank Of New York Mellon Corporation (The) shares are held by institutional investors. 0.7% of State Street Corporation shares are held by insiders. Comparatively, 3.6% of Bank Of New York Mellon Corporation (The) shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Profitability

This table compares State Street Corporation and Bank Of New York Mellon Corporation (The)’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
State Street Corporation 19.97% 12.49% 0.95%
Bank Of New York Mellon Corporation (The) 23.35% 10.35% 1.07%

Volatility and Risk

State Street Corporation has a beta of 1.31, indicating that its share price is 31% more volatile than the S&P 500. Comparatively, Bank Of New York Mellon Corporation (The) has a beta of 1.14, indicating that its share price is 14% more volatile than the S&P 500.

Dividends

State Street Corporation pays an annual dividend of $1.52 per share and has a dividend yield of 1.6%. Bank Of New York Mellon Corporation (The) pays an annual dividend of $0.96 per share and has a dividend yield of 1.9%. State Street Corporation pays out 28.1% of its earnings in the form of a dividend. Bank Of New York Mellon Corporation (The) pays out 28.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. State Street Corporation has raised its dividend for 4 consecutive years and Bank Of New York Mellon Corporation (The) has raised its dividend for 6 consecutive years. Bank Of New York Mellon Corporation (The) is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Bank Of New York Mellon Corporation (The) beats State Street Corporation on 11 of the 17 factors compared between the two stocks.

About State Street Corporation

State Street Corporation is a financial holding company. The Company operates through two lines of business: Investment Servicing and Investment Management. The Company, through its subsidiary, State Street Bank and Trust Company (State Street Bank), provides a range of financial products and services to institutional investors across the world. Investment servicing line of business performs functions, such as providing institutional investors with clearing, settlement and payment services. The Company operates investment management line of business through State Street Global Advisors (SSGA). SSGA provides a range of investment management, investment research and investment advisory services to corporations, public funds and other investors. Its clients include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers.

About Bank Of New York Mellon Corporation (The)

The Bank of New York Mellon Corporation is an investments company. The Company operates businesses through two segments: Investment Management and Investment Services. The Company also has an Other segment, which includes the leasing portfolio, corporate treasury activities (including its investment securities portfolio), derivatives and other trading, corporate and bank-owned life insurance and renewable energy investments, and business exits. As of December 31, 2016, the Company had $29.9 trillion in assets under custody and/or administration and $1.6 trillion in assets under management. The Company’s Investment Management boutiques offer a range of actively managed equity, fixed income, alternative and liability-driven investments, along with passive products and cash management. The Company offers asset servicing, clearing services, issuer services and treasury services to its clients.

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