The market is too pessimistic about next year's earnings. Growing custody and clearing fees, higher securities yields and modest share repurchases support a $163.90 twelve-month target without requiring another surge in profit margins.
Key points
- 11.1% growth in third-quarter investment-services fees excluding Issuer Services shows broader demand.
- $6.0 billion of estimated 2027 net interest income assumes slower growth.
- $163.90 a share is my twelve-month target, supported by earnings rather than expanding margins.
The call
The price asks for little earnings progress. At my 15.5 times earnings multiple, today's share price requires $9.26 of annual earnings per share. With my other assumptions unchanged, that means roughly $23.0 billion of 2027 revenue. Investors have reason to question headline growth: government-account reimbursements inflate both revenue and expenses.
Fee growth extends beyond the government-account mandateBNY financial supplement, October 15, 2026; quarterly fees in $ millions.
The market is too pessimistic about the broader business. I estimate 2027 revenue growth of 6.7%, with a roughly unchanged pretax margin of 39%. Custody and clearing demand supports fees; replacing lower-yielding securities supports interest income. The next annual outlook should test whether those drivers outlast this year's unusually fast growth.
Valuation
| My estimate or valuation step | Value |
|---|
| 2027 revenue | $24.1 billion |
| 2027 operating expenses | $14.65 billion |
| 2027 diluted earnings per share | $10.57 |
| Core earnings multiple | 14 times |
| Integrated-platform premium | 1.5 times |
| October 2027 target | $163.90 a share |
My model includes a 22% tax rate, $50 million of credit provisions, $300 million of preferred dividends and minority earnings, and 665 million diluted shares. The platform premium rewards connected custody, payments and lending relationships, not an unmeasured AI windfall; persistent client losses would remove it. Bear and bull scenarios reach roughly $118 and $199 respectively, making this a measured Buy rather than a high-conviction bargain.
Risks
- Higher rates can improve reinvestment yields but damage capital through bond losses; watch capital buffers and repurchase reductions.
- Reimbursements can disguise slowing demand; watch fees outside Issuer Services and whether expenses grow faster than revenue.
- Technology spending may outrun savings; first-half equipment and capitalized-software purchases rose 63%, so watch investment spending alongside reported expenses.
What would change my mind
Two consecutive quarters of revenue growing more slowly than expenses, excluding disclosed reimbursements, would undermine my earnings forecast.