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On Monday, UBS has adjusted its stance on shares of KeyCorp (NYSE:KEY), downgrading the financial services company's shares from Buy to Neutral. The firm also revised the stock price target to $15.00, a decrease from the previous $16.00. This change reflects a more conservative outlook on the stock's potential for upside, with the analyst citing a need for multiple expansion to drive a more compelling upside.
The analyst's perspective is that while KeyCorp's earnings estimates remain largely unchanged for the years 2024 and 2025, the anticipated recovery in net interest income (NII) due to the maturity of swaps and investments is already reflected in the current share price. The market's understanding of this recovery story is seen as a factor that limits the potential for significant multiple expansion beyond the 9 times earnings KeyCorp trades at for 2025.
Furthermore, the company's capital positioning, especially after the 2024 DFAST (Dodd-Frank Act Stress Test) results, is considered lighter compared to its peers. This lighter capital positioning is expected to constrain KeyCorp's ability to expand its multiples further.
The dividend is deemed to be stable, with a projected forward 12-month payout ratio of 70%, but concerns remain that the company's capital position could restrict growth when loan demand increases, potentially leading to a less robust NII recovery.
The updated price target is based on a valuation of 12 times the estimated earnings for 2024 and 10 times for 2025, a decrease from the previous multiples of 12.2 and 11, respectively. Additionally, the price target considers a tangible book value (TBV) multiple of approximately 1.35 times for both years, adjusted down from around 1.6 times. This revised assessment reflects the perceived earnings per share (EPS) risk associated with KeyCorp's subpar capital positioning.
In other recent news, major U.S. banks are preparing for the Federal Reserve's annual stress tests, with analysts from Keefe, Bruyette & Woods expecting strong performance from Citigroup, Goldman Sachs, and M&T Bank.
Meanwhile, KeyCorp, despite facing potential income impacts and a challenging financial landscape, has been maintaining investor confidence with Piper Sandler reaffirming its Overweight rating on the bank's stock. These developments come amid KeyCorp's recent declaration of dividends across its common and preferred stock categories, reflecting its continued commitment to shareholder returns.
In terms of financial performance, KeyCorp's second quarter 2024 net interest income (NII) might fall short of the company's own expectations due to slower-than-anticipated loan growth. However, it should align closely with Piper Sandler's prior estimates.
The company also forecasted a decline in investment banking revenues for the same quarter but expressed confidence in meeting the full-year 2024 fee revenue guidance.
Despite the challenging financial landscape for U.S. mid-sized banks, KeyCorp, along with other regional banks, reported lower first-quarter profits and is expected to see a decrease in net interest income for the year. However, analysts remain optimistic about KeyCorp's ability to navigate these financial headwinds. These are the recent developments that investors should keep an eye on.
InvestingPro Insights
As KeyCorp navigates through the financial landscape, real-time data from InvestingPro provides a clearer picture of its current market position. With a market capitalization of $13.2 billion and a Price/Earnings (P/E) ratio of 17.82, which adjusts to 16.83 on a last twelve months basis as of Q1 2024, the company shows a valuation that aligns with the industry standards.
Despite a revenue decline of 14.28% over the last twelve months, KeyCorp has maintained a robust operating income margin of 19.61%. This data suggests that while top-line growth has been challenged, the company's efficiency in operations has remained intact.
InvestingPro Tips highlight that KeyCorp has raised its dividend for 13 consecutive years, showcasing a commitment to returning value to shareholders. Moreover, the company's dividend yield stands at an attractive 5.88%, as of the most recent data. These factors are particularly relevant for income-focused investors and align with the article's mention of KeyCorp's stable dividend despite the concerns about capital positioning.
For those considering deeper analysis, InvestingPro offers additional insights and tips, including 10 more tips on KeyCorp's stock performance and future outlook. To access these valuable resources and enhance your investment strategy, visit https://www.investing.com/pro/KEY and use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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