KeyCorp’s SWOT analysis: stock outlook amid strategic growth and market challenges

KeyCorp (NYSE:KEY), a prominent player in the U.S. Large-Cap Banks sector, has been navigating a complex financial landscape characterized by strategic investments, robust fee income, and ambitious growth targets. With a market capitalization of $20.49 billion and a strong return over the last three months, the company has shown resilience in challenging market conditions. As the company continues to execute its plans for 2025 and beyond, investors and analysts are closely monitoring its performance and potential in an ever-evolving banking environment.

InvestingPro analysis reveals several promising indicators for KEY, including expected net income growth and projected sales increases for the current year. For deeper insights into KEY’s potential, including exclusive financial metrics and expert analysis, explore the comprehensive Pro Research Report available on InvestingPro.

Financial Performance and Strategic Initiatives

KeyCorp’s recent financial performance has been marked by several positive developments. In the second quarter of 2025, the company reported earnings per share (EPS) that slightly exceeded expectations, driven by record investment banking fees and net interest income (NII) that met projections. The company’s ability to manage expenses effectively also contributed to this favorable outcome.

One of the most significant strategic moves for KeyCorp has been the completion of a $2.8 billion investment from Bank of Nova Scotia (NYSE:BNS), with the final tranche of $2.0 billion closing earlier than anticipated. This investment, representing a 14.9% stake in KeyCorp, is expected to play a crucial role in supporting the company’s 2025 outlook and beyond.

In addition to the BNS investment, KeyCorp undertook a substantial securities repositioning in the fourth quarter of 2024, resulting in a yield increase of 400 basis points. While this repositioning led to a $0.7 billion after-tax loss, it is positioned to drive a projected 20% growth in NII for 2025, showcasing the company’s proactive approach to balance sheet management.

Market Position and Competitive Landscape

KeyCorp’s market position remains solid within the U.S. banking sector, currently trading at $18.44 per share with a beta of 1.09, indicating moderate market sensitivity. The company’s focus on combining traditional banking services with investment banking capabilities has allowed it to diversify its revenue streams and capitalize on market opportunities. Notably, KEY maintains an attractive dividend yield of 4.45% and has maintained dividend payments for 54 consecutive years, demonstrating long-term financial stability.

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The competitive landscape for large-cap banks remains challenging, with economic uncertainties and regulatory pressures continuing to shape the industry. However, KeyCorp’s strong capital position, evidenced by a 9.8% proforma CET1 ratio, positions it favorably among its peers. This robust capital base provides a buffer against potential economic headwinds and supports the company’s growth initiatives.

Outlook and Guidance

Looking ahead, KeyCorp has maintained its full-year guidance for 2025, which includes several ambitious targets:

• Net Interest Income (NII) growth of 20%
• Fee income growth exceeding 5%
• Expense growth maintained between 2-3%
• Net Interest Margin (NIM) expansion of at least 12 basis points over the next three quarters

These projections reflect management’s confidence in the company’s ability to execute its strategic plan and capitalize on market opportunities. The anticipated NII growth is particularly noteworthy, as it suggests KeyCorp’s ability to navigate the interest rate environment effectively.

Furthermore, KeyCorp has announced a $1 billion share repurchase program set to commence in the second half of 2025. This initiative signals management’s confidence in the company’s financial health and its commitment to returning value to shareholders.

Bear Case

How might rising credit provisions impact KeyCorp’s profitability?

Despite KeyCorp’s overall positive outlook, there are concerns regarding the potential impact of rising credit provisions on the company’s profitability. In recent quarters, KeyCorp has reported higher-than-expected provisions for credit losses, which have partially offset gains from strong fee income and expense management.

The uncertain economic environment could lead to further increases in credit provisions, potentially eroding profit margins. While KeyCorp’s non-performing assets (NPAs) have shown some improvement, decreasing by 7 basis points in a recent quarter, continued vigilance in credit risk management will be crucial to maintaining profitability.

What risks does KeyCorp face in achieving its projected NII growth?

KeyCorp’s ambitious target of 20% NII growth for 2025 faces several potential headwinds. The interest rate environment remains a key factor, with any unexpected shifts in monetary policy potentially impacting the company’s ability to achieve its NIM expansion goals.

Additionally, competitive pressures in the lending market could challenge KeyCorp’s ability to grow its loan book at the projected rates. If loan growth falls short of expectations or if deposit costs rise faster than anticipated, the company may struggle to meet its NII growth targets.

Bull Case

How could KeyCorp’s investment banking fees contribute to overall growth?

KeyCorp’s record investment banking fees in recent quarters highlight a significant opportunity for growth and diversification of revenue streams. The company’s ability to capitalize on capital markets activities and advisory services could provide a substantial boost to its fee income.

As KeyCorp continues to strengthen its investment banking capabilities, it may be able to capture a larger share of the market, particularly in middle-market segments where it has established relationships. This could lead to sustained growth in fee income, potentially exceeding the projected 5% increase and contributing meaningfully to overall profitability.

What potential benefits could the BNS investment bring to KeyCorp?

The strategic investment from Bank of Nova Scotia presents several opportunities for KeyCorp. Beyond the immediate capital infusion, this partnership could open doors to new markets, customer segments, or product offerings.

Potential synergies between KeyCorp and BNS could lead to enhanced operational efficiencies, knowledge sharing, and the development of innovative financial products. Moreover, the investment strengthens KeyCorp’s capital position, providing additional flexibility for future growth initiatives or navigating economic uncertainties.

SWOT Analysis

Strengths

• Strong projected NII growth of 20% for 2025
• Robust fee income, particularly from investment banking
• Effective expense management, with growth targeted between 2-3%
• Strategic partnership with Bank of Nova Scotia
• Solid capital position with a 9.8% proforma CET1 ratio

Weaknesses

• Higher-than-expected credit provisions in recent quarters
• Potential pressure on NIM due to interest rate fluctuations
• Dependence on achieving ambitious loan growth targets

Opportunities

• Expansion of investment banking services and fee-based income
• Potential synergies and market access through BNS partnership
• $1 billion share repurchase program enhancing shareholder value
• Possible market share gains in middle-market banking segments

Threats

• Economic uncertainties affecting credit quality and loan demand
• Regulatory changes impacting capital requirements or business operations
• Intense competition in the banking sector pressuring margins
• Potential technological disruptions in financial services

Analysts Targets

• Barclays (LON:BARC) Capital Inc.: $20.00 (July 24, 2025)
• Piper Sandler: $16.00 (April 21, 2025)
• Citi Research: $20.00 (March 10, 2025)

KeyCorp’s stock continues to attract varied opinions from analysts, with price targets ranging from $16 to $20. The most recent assessment from Barclays Capital Inc. maintains a $20 target, reflecting confidence in the company’s growth strategy and market position. However, the range of targets underscores the complex factors influencing KeyCorp’s valuation and the differing perspectives on its future performance.

In conclusion, KeyCorp stands at a pivotal juncture, balancing ambitious growth targets with the realities of a challenging banking environment. While the company’s strategic initiatives and strong capital position provide a solid foundation for growth, the execution of its plans in the face of economic uncertainties and competitive pressures will be crucial in determining its success in the coming years. Based on InvestingPro’s Fair Value analysis, KEY currently appears fairly valued, with analysts maintaining price targets ranging from $17 to $43.

Discover if KEY aligns with your investment strategy through InvestingPro’s comprehensive analysis tools, including detailed valuation metrics, financial health scores, and expert insights. Visit our ProPicks platform to explore AI-driven investment recommendations and portfolio strategies. Investors and analysts will be closely watching KeyCorp’s ability to deliver on its promises and navigate the evolving financial landscape.

This analysis is based on information available up to July 29, 2025, and reflects the most recent data and projections provided by various financial institutions and KeyCorp itself.

InvestingPro: Smarter Decisions, Better Returns

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