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Analyst Blog

On Sep 10, 2013, we reiterated our long-term recommendation on KeyCorp. (KEY - Analyst Report) at Neutral. Our decision was based on the company’s robust second-quarter earnings and strong balance sheet position. However, sluggish economic recovery and a stringent regulatory landscape remain causes of concern.

Why Neutral?

KeyCorp’s second-quarter adjusted earnings outpaced the Zacks Consensus Estimate. Results benefited from a rise in net interest income, partially offset by higher operating expenses and a fall in fee income. Moreover, continued improvement in asset quality and strong capital ratios were the other highlights for the quarter.

We view KeyCorp as an asset for yield-seeking investors. The company has been meaningfully deploying capital to boost investors’ confidence. Further, KeyCorp has chalked out an expense reduction program with the target of generating cost savings of $200 million by the end of 2013.

The Zacks Consensus Estimate for 2013 increased by a penny to 88 cents per share over the last 60 days. For 2014, the Zacks Consensus Estimate advanced 3.1% to $1.00 per share over the same time frame. KeyCorp currently carries a Zacks Rank #3 (Hold).  

On the flip side, pressure on net interest margin remains a major concern for KeyCorp. Additionally, sluggish economic recovery and stringent regulations could negatively impact the company’s financials going forward. Further, a more rigid capital requirement will likely hamper the company’s flexibility with respect to its business investments.

Other Banks to Consider

Some better-performing banks include PrivateBancorp, Inc. (PVTB - Snapshot Report), First Interstate Bancsystem Inc. (FIBK - Snapshot Report) and East West Bancorp, Inc. (EWBC - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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