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Investing.com - Citi downgraded KeyCorp (NYSE:KEY) from Buy to Neutral while raising its price target to $20.00 from $19.00. The regional bank, with a market capitalization of $20.91 billion, has shown strong momentum with a 12.5% return year-to-date.
The downgrade comes despite KeyCorp management revising its net interest income (NII) guidance higher, with fourth-quarter 2025 now expected to be up 11%+ year-over-year compared to the previous outlook of 10%+. The bank also raised its net interest margin (NIM) forecast to approximately 2.75% from the previous 2.7%+. Notable for income investors, KeyCorp maintains a 4.36% dividend yield and has consistently paid dividends for 54 consecutive years.
KeyCorp stock outperformed on the day of its earnings report, closing up 2.35% compared to the KBW Bank Index’s 0.65% gain. Citi sees a path to a 2.75-2.8% exit-rate NIM, suggesting potential upside to the NII guidance.
While Citi expects management to hit fee, expense, and credit targets in 2025, the firm believes the improved outlook is now largely priced into the stock. KeyCorp is trading at an implied approximately 10.5% cost of equity, in line with Citi’s normalized assumption.
The price target increase to $20 reflects a lower cost of equity assumption, aligned with option-implied betas, but Citi sees better risk/reward opportunities elsewhere in the sector.
In other recent news, KeyCorp reported its second-quarter 2025 earnings with revenue exceeding expectations at $1.84 billion, marking a 2.22% surprise over the forecast. Despite this revenue success, the company’s earnings per share fell short at $0.25, missing the projected $0.35 by 28.57%. BofA Securities raised its price target for KeyCorp to $21.00 from $20.00, maintaining a Buy rating, citing an improved net interest margin (NIM) outlook. Meanwhile, TD Cowen increased its price target to $20.00 from $18.00, maintaining a Hold rating, due to strong loan growth trends that are boosting net interest income. These developments indicate a positive shift in the bank’s financial outlook despite the earnings per share miss.
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