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Muted Loan Growth, Low Rates to Hurt KeyCorp (KEY) Q1 Earnings

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KeyCorp (KEY - Free Report) is slated to announce first-quarter 2021 results on Apr 20, before the opening bell. Similar to 2020, the overall demand for loans remained soft in the to-be-reported quarter due to the continued slow resumption of business activities. Commercial and industrial loan balances (accounting for roughly 50% of KeyCorp’s average loan balances) witnessed a decline.

The Zacks Consensus Estimate for KeyCorp’s average total loans for the first quarter is pegged at $100.3 billion, indicating a decline of 1.4% from the previous quarter’s reported number. Also, the consensus estimate for average earning assets of $153.8 billion suggests a marginal decline sequentially.

Thus, despite the steepening of the yield curve, KeyCorp’s net interest income (NII) is expected to have been negatively impacted in the first quarter because of muted loan growth and the near-zero interest rate environment. The Zacks Consensus Estimate for NII (on a fully tax-equivalent basis) of $1.02 billion indicates a decline of 2.6% from the prior quarter’s reported figure.

Other Key Factors at Play

Non-interest Income: Similar to the second half of 2020, deal-making continued at a fast pace in first-quarter 2021 on the gradual global roll-out of COVID-19 vaccines, a brighter macroeconomic outlook and lower interest rates. Though the deal volume didn’t show much improvement, the total value of pending/completed transactions rose drastically. Also, the IPO markets continued to remain active. Further, a rise was witnessed in equity and debt issuances in the quarter. These are expected to have provided support to KeyCorp’s investment banking business. Also, given the continued rise in market volatility along with higher client activities, trading income is likely to have improved. Yet, the consensus estimate for KeyCorp’s investment banking and capital markets income is pegged at $171 million, which indicates a fall of 29.6% sequentially.

Likewise, historically low mortgage rates continued to fuel the demand for new mortgages in the quarter. Relaxed lockdown measures and gradually improving economic conditions are likely to have resulted in prospective homebuyers entering the housing market to take advantage of the low rates.

However, as rates gradually increased, refinancing activities are not expected to have been great. Thus, owing to the decent mortgage-banking business performance, KeyCorp’s mortgage servicing fees are expected to have been positively impacted. The Zacks Consensus Estimate for the same is pegged at $25.16 million, suggesting a decline of 21.4% from the previous quarter’s reported figure.

Notably, the Zacks Consensus Estimate for trust and investment services income of $125 million suggests a 1.6% rise from the prior quarter’s reported number.

Thus, the consensus estimate for total non-interest income of $682 million indicates a rise of 36.4% on a sequential basis.

Expenses: KeyCorp’s efforts to reorganize operations and exit unprofitable/non-core businesses helped it save costs in the past. The trend is expected to have continued in the first quarter.

Asset Quality: The consensus estimate for non-performing loans of $773 million suggests a decline of 1.5% on a sequential basis.

What the Zacks Model Unveils

Our proven model shows that KeyCorp has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for KeyCorp is +0.03%.

Zacks Rank: The company currently carries a Zacks Rank #3.

The Zacks Consensus Estimate for KeyCorp’s first-quarter earnings is pegged at 49 cents per share, which suggests a significant rise from the prior-year quarter’s reported number. The estimate has been revised 2.1% upward over the past seven days.

The consensus estimate for sales of $1.70 billion indicates 16.7% growth from the year-ago quarter’s reported figure.

KeyCorp Price and EPS Surprise


KeyCorp Price and EPS Surprise

KeyCorp price-eps-surprise | KeyCorp Quote

Other Stocks Worth a Look

Here are some other finance stocks that you may want to consider as these too have the right combination of elements to post an earnings beat this earnings season.

BankUnited (BKU - Free Report) is scheduled to release earnings on Apr 22. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.64%.

The Earnings ESP for Invesco (IVZ - Free Report) is +1.13% and it sports a Zacks Rank #1 (Strong Buy) at present. The company is slated to report quarterly numbers on Apr 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

Capital One Financial Corporation (COF - Free Report) is slated to report quarterly results on Apr 27. The company currently has an Earnings ESP of +1.47% and a Zacks Rank of 3.

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