KeyCorp stock rating set with Hold on balanced growth

On Tuesday, Truist Securities began covering KeyCorp (NYSE:KEY) shares, assigning a Hold rating and setting a price target of $19.00. According to InvestingPro data, six analysts have recently revised their earnings estimates upward for the upcoming period, suggesting growing confidence in the bank's prospects.

The initiation of coverage comes with an analysis of the bank's position amid recent economic changes. Truist Securities pointed out that KeyCorp was significantly impacted by the recent hike in interest rates, particularly due to its swaps and securities book.

The bank's strategy of swapping a substantial portion of floating loans to fixed-rate ones resulted in a drag on earnings. KeyCorp's loan beta, which indicates how much the bank's loan income is affected by interest rate changes, is at 40%, lagging behind its peers' average of 50%. Conversely, the deposit beta, a measure of how much deposit costs are affected by interest rates, did not decelerate as expected.

Truist Securities anticipates that KeyCorp will course-correct throughout 2025 and beyond. The analysts highlighted a silver lining, noting that KeyCorp's fee income has bottomed out and is experiencing a strong rebound, particularly in investment banking.

This optimism is supported by the stock's impressive 27.48% price return over the past six months, while maintaining its 53-year streak of consecutive dividend payments with a current yield of 4.72%. Growth is also expected to continue in wealth management and commercial mortgage sectors.

The firm expressed confidence in KeyCorp's fundamentals and its path to normalization of performance, suggesting approximately a 10% upside potential from its current trading levels, which is based on 11 times the projected 2026 earnings per share (EPS). KeyCorp is characterized by its market capitalization of $17 billion and nearly $190 billion in assets, mainly in retail and commercial banking products.

The bank has been recognized for its distinct and comprehensive commercial platforms, with its Investment Banking platform achieving a compound annual growth rate (CAGR) of 8-9% since the 2011 trough.

Moreover, KeyCorp has been shifting towards a more balanced growth model in consumer banking, supported by the expansion of digital banking capabilities. InvestingPro analysis indicates the stock is currently trading slightly below its Fair Value, with the next earnings report due on January 21, 2025.

For deeper insights into KeyCorp's valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers, which provides detailed analysis of this $17.23 billion market cap institution. The bank's major consumer footprints span across the northeast and northwest regions of the United States.

In other recent news, KeyCorp has been the subject of several significant developments. The company reported a 7% quarter-over-quarter increase in net interest income during its third quarter of 2024 and projects a 20% increase in net interest income for 2025, despite a predicted decline of 2% to 5% in 2024. Scotiabank (TSX:BNS) has finalized the acquisition of a 14.9% stake in KeyCorp, marking a substantial financial event for both institutions.

Furthermore, Robert Weiss has been appointed as Head of Key Family Wealth, a division that manages approximately $23 billion in assets under management. Weiss brings over two decades of experience in wealth management and will focus on enhancing the services provided to advisors and their clients.

In terms of analyst assessments, KeyCorp's stock has been downgraded from 'Buy' to 'Neutral' by Citi. However, DA Davidson and RBC Capital Markets have both raised their stock price targets for KeyCorp, citing strong growth prospects. These are recent developments in KeyCorp's ongoing journey, reflecting the dynamic financial landscape faced by U.S. regional banks.

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