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On Monday, Baird analyst David George upgraded shares of KeyCorp (NYSE:KEY) to Outperform, raising the price target to $18.00 from the previous Neutral stance. The upgrade comes as the stock trades at $13.47, down over 20% year-to-date. According to InvestingPro data, the stock’s RSI suggests oversold territory, potentially supporting the timing of this upgrade. The upgrade comes in light of KeyCorp’s strong capital position and the potential benefits from its recent buyback program.
George noted that KeyCorp’s excess capital and the sizable buyback authorization offer a substantial margin of safety for the stock. He pointed out that following the NSB equity raise, which generated approximately $2.8 billion at $17.17 per share, KeyCorp now boasts a Common Equity Tier 1 (CET1) ratio of around 12%, indicating a robust capital structure. The bank has maintained dividend payments for 54 consecutive years, currently offering a substantial 6.09% dividend yield.
Additionally, the bank’s Net Interest Margin (NIM) has seen significant improvement. This financial metric is critical for banks as it measures the difference between the income generated from interest-earning assets and the expenses tied to paying out interest on deposits. A higher NIM can lead to increased profitability for financial institutions.
The analyst also highlighted the repurchase program announced by KeyCorp’s management on March 13, which involves a $1 billion buyback plan. Given that KeyCorp’s stock closed on Friday at $13.47, George believes that the bank is well-positioned to repurchase its stock at a discount, as it is currently trading at approximately 0.9 times tangible book value, excluding other comprehensive income (TBV ex-OCI).
George’s comments underscore the potential for KeyCorp to enhance shareholder value through its repurchase program, especially considering the stock’s current valuation. The bank’s ability to buy back shares at a price below the tangible book value suggests an attractive opportunity for capital deployment.
KeyCorp’s stock performance and future buybacks will be closely watched by investors, as the bank continues to navigate the financial landscape with its strong capital position and management strategies aimed at maximizing returns. Trading at 0.95 times book value and showing signs of being slightly undervalued according to InvestingPro Fair Value analysis, the stock presents an interesting opportunity despite its current WEAK Financial Health score. For deeper insights into KeyCorp’s valuation and 12+ additional ProTips, explore the comprehensive Pro Research Report available on InvestingPro.
In other recent news, KeyCorp reported its fourth-quarter 2024 earnings, exceeding analyst expectations with an adjusted earnings per share (EPS) of $0.38, compared to the forecasted $0.33. Despite the positive earnings surprise, revenue fell short of forecasts, coming in at $865 million against the anticipated $1.74 billion. KeyCorp also announced a $1 billion share repurchase program, set to begin in the second half of 2025, which allows the company to buy back its common shares as market conditions permit. Additionally, Citi analyst Keith Horowitz upgraded KeyCorp’s stock rating from Neutral to Buy, setting a price target of $20.00, citing the company’s attractive valuation and solid fundamentals. Horowitz projects that KeyCorp’s earnings per share could reach approximately $2 by 2027, up from the current estimate of $1.55 for 2025. The company also achieved record annual adjusted EBITDA of $1.3 billion and record net earnings of $487 million in 2024. Furthermore, KeyCorp raised its dividend by 4%, signaling confidence in its financial health and commitment to returning value to shareholders. These developments highlight KeyCorp’s strategic initiatives and potential growth opportunities amid challenging market conditions.
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