Financial Services company KeyCorp (KEY) specializes in banking services, operating through two segments: Key Community Bank and Key Corporate Bank. Despite record low benchmark interest rates, KEY’s net interest income rose 5.7% year-over-year to $1.04 billion in the fourth quarter ended December 31. Its non-interest income, in comparison, increased 23.2% from its year-ago value to $802 million. Its quarterly net income increased 25.1% from the year-ago value to $549 million.
As one of the few banks that reported growth in its commercial and community banking operations over the last quarter, the stock enjoys significant momentum also; it has risen 88.9% over the past year, and 24.4% year-to-date.
Here’s what we think could shape KEY’s performance in the near term:
Business Growth
In late March, KEY’s brand, Laurel Road, launched Laurel Road for Doctors, which is customized to offer digital banking services to medical professionals. The service helps clients to manage their debt and financials carefully, customized to an individual's needs. The COVID-19 pandemic has shed light on a shortage of medical professionals in the U.S. and the world. As such, the demand for digital banking services tailored to an increasing volume of medical aspirants is expected to increase. And on March 3, KEY acquired financial services analytics company AQN Strategies LLC to facilitate its data-driven approach to risk management and to expand its customer reach. In February, KEY’s multi-family office division was named the best multi-family office in the $10 billion - $20 billion category in the 2021 Private Asset Management Awards.
Impressive Growth Prospects
Analysts expect KEY’s EPS to rise 300% year-over-year to $0.48 in the most recent quarter (ended March 2021).The company’s earnings are projected to rise 182.4% from the same period last year to $0.48 in the current quarter, ending June 2021. Also, its annual EPS is expected to rise 49.6% year-over-year to $1.90 in fiscal 2021. The company has an impressive earnings surprise history also; it beat the Street’s EPS estimates in three out of trailing four quarters.
A consensus revenue estimate of $1.69 billion for the about-to-be-reported quarter, ended March 2021 represents a 15.1% improvement from the same period last year. The Street expects KEY’s annual revenues to rise slightly this year to $6.79 billion.
Trading at a Discounted Valuation
In terms of non-GAAP forward P/E, KEY is currently trading at 10.88x, 14.3% lower than the industry average 12.69x. Its forward price/sales multiple of 2.93 is 10.6% lower than the industry average of 3.27.
Also, the company’s forward price/book ratio of 1.19 is marginally lower than the industry average 1.20.
Consensus Rating and Price Target Indicate Potential Upside
Of 13 Wall Street analysts that rated the stock, four rated it Buy, seven rated it Hold, and two rated it Sell. The stock’s 12-month median price target of $22.50 indicates a potential upside of 10.2%. The stock has a high price forecast of $30, and low forecast of $20.
POWR Ratings Reflect Rosy Prospects
KEY has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth and Sentiment. This is justified, given the company’s impressive financial growth in its last reported quarter, and favorable analyst sentiment.
KEY is ranked #1 of 11 stocks in the Money Center Banks industry. In total, we rate KEY on eight different levels. Beyond what we’ve stated above, one can check out additional ratings for Stability, Value, Momentum, and Quality here.
Bottom Line
The continued near-zero interest rate environment should continue boosting borrowing appetite this year because businesses are capitalizing on low borrowing costs to recover from the coronavirus recession and to expand their operations. Thus, as the demand for personal and commercial loans increase, we think KEY should continue witnessing stellar growth.
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KEY shares were unchanged in premarket trading Tuesday. Year-to-date, KEY has gained 26.08%, versus a 11.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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