Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

On Mar 22, 2013, we reaffirmed our Neutral recommendation on KeyCorp (KEY - Analyst Report) based on its in-line results, meaningful capital deployment actions and expense reduction initiatives. However, pressure on net interest margin (NIM), persisting slow economic recovery and a stringent regulatory landscape remain the major causes of concern for this Zacks Rank #3 (Hold) stock.

Why the Neutral Stance?

KeyCorp’s fourth-quarter 2012 earnings were in line with the Zacks Consensus Estimate and the year-ago earnings. Top-line growth, continued improvement in credit quality and robust capital ratios were the positives for the quarter. However, higher operating expenses offset the positives.

Further, in the past 30 days, only a few estimates have moved up, keeping the Zacks Consensus Estimate for 2013 unchanged. Similarly, estimates for 2014 have remained flat over the same period. In addition, over the past 4 quarters, the company has delivered average earnings surprise of 10.8%.

Recently, after receiving the Federal Reserve’s approval, KeyCorp announced a $426 million share repurchase program, which will be executed by Mar 2014. The company also plans to hike its quarterly dividend by 10% from the present $0.05 per share starting the second quarter. This makes KeyCorp a sound asset for yield-seeking investors. In addition to controlling the rising expenses, management at KeyCorp chalked out an expense reduction program with an aim to rationalize the cost structure. The company intends to reduce expenses by $150 – $200 million by the end of this year. It also plans to reduce occupancy costs and consolidate nearly 5% of its branch network.

Yet, pressure on NIM remains a primary concern for KeyCorp. Though the company has been benefiting from improved funding costs and better earning asset yield since the second half of 2009, we expect the margin pressure to remain in place in the near term due to the soft new loan demand. In addition, market dislocations over the last couple of years have led to deterioration in the valuation of many of the asset categories in KeyCorp’s balance sheet, thereby lowering its ability to sell assets at acceptable prices.

Going forward, a slow economic recovery and stringent regulatory landscape are likely to add to its woes.

Other Stocks to Consider

Stocks that are performing better than KeyCorp include Citigroup Inc. (C - Analyst Report), State Street Corporation (STT - Analyst Report) and BankUnited, Inc. (BKU - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
BITAUTO HOLD BITA 35.33 +14.82%
ANI PHARMACE ANIP 24.79 +14.66%
E HOUSECHINA EJ 10.99 +9.24%
CANADIAN SOL CSIQ 26.97 +7.15%
INTERNATIONA ICAGY 33.30 +5.38%