KeyCorp stock downgraded to neutral, price target cut by Baird

On Monday, Baird adjusted its stance on KeyCorp (NYSE: NYSE:KEY), downgrading the stock from Outperform to Neutral and lowering the price target to $17 from the previous $18. The revision follows a significant increase in the company's share value, which has risen 63% over the past year, outpacing the broader market by more than double.

The downgrade reflects a reassessment of KeyCorp's stock value in relation to its longer-term earnings potential. Despite concerns about the bank's capital levels and general apprehensions surrounding regional banks, the analyst indicated that these issues were previously considered exaggerated. However, the current stock price is believed to now adequately represent KeyCorp's earnings power when analyzed on a normalized basis through economic cycles.

KeyCorp's current underperformance is acknowledged, but the analyst suggests that the stock price largely accounts for the bank's potential upside, which includes an estimated $2.30 in normalized earnings before dilution. The expected dilution stems from KeyCorp's stake in The Bank of Nova Scotia (BNS), which, while addressing a short-term hurdle, is anticipated to dilute the long-term benefits for shareholders.

The adjustment in the price target and rating comes after a period of strong performance by KeyCorp's shares, which have seen a significant upturn in the market, reflecting investor optimism about the bank's future earnings capacity. The bank's recent moves, including the BNS stake, are seen as a strategic effort to navigate near-term challenges, but with implications for shareholder value over an extended period.

In other recent news, KeyCorp, a prominent financial services company, has been the subject of several significant developments. The firm recently sold approximately $7 billion of low-yielding investment securities, an action expected to result in an after-tax loss of about $700 million for the third quarter of 2024. Additionally, KeyCorp sold a nearly 15% minority stake to Scotiabank, a transaction projected to contribute approximately $400 million to KeyCorp's net interest income through 2025.

Analysts from firms such as Piper Sandler and Citi have maintained positive ratings on KeyCorp, with Citi increasing its earnings per share (EPS) forecast for 2025 by $0.05 to $1.55. Meanwhile, Piper Sandler has reaffirmed its Overweight rating, indicating confidence in the bank's future financial performance.

The financial institution's recent actions have prompted several adjustments from financial firms. Jefferies increased its price target for KeyCorp shares to $19.00, maintaining a Buy rating, while Piper Sandler reaffirmed its Overweight rating on KeyCorp. Furthermore, Morgan Stanley anticipates a modest increase of 1% for 2025's EPS.

InvestingPro Insights

KeyCorp's recent market performance aligns with several key metrics and insights from InvestingPro. The stock's 74.48% total return over the past year, as reported by InvestingPro, supports Baird's observation of KeyCorp's significant outperformance. This impressive gain is further emphasized by the stock trading at 98.57% of its 52-week high, indicating strong momentum.

InvestingPro data shows KeyCorp's P/E ratio at 22.38, which may suggest that the stock is now fairly valued, aligning with Baird's view that the current price adequately reflects the bank's earnings potential. The dividend yield of 4.76% and the fact that KeyCorp has maintained dividend payments for 53 consecutive years (an InvestingPro Tip) could be attractive to income-focused investors, potentially contributing to the stock's recent popularity.

However, investors should note that KeyCorp's revenue growth has been negative, with a -10.07% decline in the last twelve months. This metric might support Baird's decision to downgrade the stock, as it could indicate challenges in maintaining the recent stock price momentum.

For a more comprehensive analysis, InvestingPro offers additional tips and insights. Currently, there are 8 more InvestingPro Tips available for KeyCorp, which could provide valuable context for investors considering the stock's future prospects.

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