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Loan Growth, Higher Rates to Aid KeyCorp (KEY) Amid Cost Woes
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KeyCorp (KEY - Free Report) is well-positioned for continued top-line growth, supported by the rise in loan balances, along with higher interest rates. Given a solid capital position, the company is expected to continue enhancing shareholder value through efficient capital deployment activities.
However, KeyCorp’s significant exposure to risky loan portfolios might curb its growth in the near term. Elevated expenses are likely to hurt bottom-line growth.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised 4.1% lower over the past 30 days. This reflects that analysts are not optimistic regarding its earnings growth potential. Thus, KEY currently carries a Zacks Rank #3 (Hold).
In the past six months, shares of the company have lost 4.9% against the industry’s growth of 0.4%.
Image Source: Zacks Investment Research
Coming to its fundamentals, although KEY’s tax-equivalent revenues declined in 2019, the same witnessed a compound annual growth rate (CAGR) of 3.7% over the last five years (2017-2021), with the uptrend continuing in the first nine months of 2022.
In the same period, loans witnessed a CAGR of 4.2% and deposits saw a CAGR of 9.7%. Solid deposit balances and an improvement in demand for loans, along with the company’s efforts to strengthen fee income, are expected to keep supporting the top line.
The Federal Reserve has been raising interest rates since this March to tame the raging inflation. Supported by higher rates, KeyCorp’s net interest margin (NIM) is likely to witness growth. After slashing rates thrice in 2019, the central bank cut interest rates to near-zero in March 2020 (to cushion the U.S. economy from the coronavirus-induced mayhem), which hurt KEY’s NIM. Nevertheless, NIM on a tax-equivalent basis increased in the first nine months of 2022.
KeyCorp’s business-restructuring efforts are impressive. This May, it acquired GradFin, which will likely strengthen its digital offering capabilities. Last year, it acquired a B2B-focused digital platform, XUP Payments and a data analytics-driven consultancy firm, AQN Strategies LLC. These, along with several past buyouts/expansion initiatives, are expected to strengthen KEY’s product suites and market share.
However, the company’s expenses have witnessed a five-year (2017-2021) CAGR of 2%. The rise was mainly due to higher personal costs. While expenses were almost stable in the first nine months of 2022, the same will likely remain elevated in the near term because of KEY’s investments in franchise, technological upgrades, inflationary pressure and inorganic growth efforts.
KeyCorp has substantial exposure to residential prime loans and commercial real estate loans. As of Sep 30, 2022, the company’s exposure to these loan portfolios was more than 40% of total loans. Though there has been an improvement in the housing sector over the past few years, if there is a significant deterioration in real estate prices, it will likely create trouble for the company.
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Ares Capital Corporation (ARCC - Free Report) and Gladstone Investment Corporation (GAIN - Free Report) .
The Zacks Consensus Estimate for Ares Capital’s current-year earnings has moved 5.2% higher over the past 30 days. Its shares have gained 7.3% in the past month. Currently, ARCC carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Gladstone Investment currently sports a Zacks Rank #1. Its earnings estimates for the current fiscal year have been revised 5.4% upward over the past 30 days. In the past month, GAIN’s shares have rallied 9%.
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Loan Growth, Higher Rates to Aid KeyCorp (KEY) Amid Cost Woes
KeyCorp (KEY - Free Report) is well-positioned for continued top-line growth, supported by the rise in loan balances, along with higher interest rates. Given a solid capital position, the company is expected to continue enhancing shareholder value through efficient capital deployment activities.
However, KeyCorp’s significant exposure to risky loan portfolios might curb its growth in the near term. Elevated expenses are likely to hurt bottom-line growth.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised 4.1% lower over the past 30 days. This reflects that analysts are not optimistic regarding its earnings growth potential. Thus, KEY currently carries a Zacks Rank #3 (Hold).
In the past six months, shares of the company have lost 4.9% against the industry’s growth of 0.4%.
Image Source: Zacks Investment Research
Coming to its fundamentals, although KEY’s tax-equivalent revenues declined in 2019, the same witnessed a compound annual growth rate (CAGR) of 3.7% over the last five years (2017-2021), with the uptrend continuing in the first nine months of 2022.
In the same period, loans witnessed a CAGR of 4.2% and deposits saw a CAGR of 9.7%. Solid deposit balances and an improvement in demand for loans, along with the company’s efforts to strengthen fee income, are expected to keep supporting the top line.
The Federal Reserve has been raising interest rates since this March to tame the raging inflation. Supported by higher rates, KeyCorp’s net interest margin (NIM) is likely to witness growth. After slashing rates thrice in 2019, the central bank cut interest rates to near-zero in March 2020 (to cushion the U.S. economy from the coronavirus-induced mayhem), which hurt KEY’s NIM. Nevertheless, NIM on a tax-equivalent basis increased in the first nine months of 2022.
KeyCorp’s business-restructuring efforts are impressive. This May, it acquired GradFin, which will likely strengthen its digital offering capabilities. Last year, it acquired a B2B-focused digital platform, XUP Payments and a data analytics-driven consultancy firm, AQN Strategies LLC. These, along with several past buyouts/expansion initiatives, are expected to strengthen KEY’s product suites and market share.
However, the company’s expenses have witnessed a five-year (2017-2021) CAGR of 2%. The rise was mainly due to higher personal costs. While expenses were almost stable in the first nine months of 2022, the same will likely remain elevated in the near term because of KEY’s investments in franchise, technological upgrades, inflationary pressure and inorganic growth efforts.
KeyCorp has substantial exposure to residential prime loans and commercial real estate loans. As of Sep 30, 2022, the company’s exposure to these loan portfolios was more than 40% of total loans. Though there has been an improvement in the housing sector over the past few years, if there is a significant deterioration in real estate prices, it will likely create trouble for the company.
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Ares Capital Corporation (ARCC - Free Report) and Gladstone Investment Corporation (GAIN - Free Report) .
The Zacks Consensus Estimate for Ares Capital’s current-year earnings has moved 5.2% higher over the past 30 days. Its shares have gained 7.3% in the past month. Currently, ARCC carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Gladstone Investment currently sports a Zacks Rank #1. Its earnings estimates for the current fiscal year have been revised 5.4% upward over the past 30 days. In the past month, GAIN’s shares have rallied 9%.