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KeyCorp (KEY) Up 12% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for KeyCorp (KEY - Free Report) . Shares have added about 12% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is KeyCorp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

KeyCorp Q1 Earnings & Revenues Beat Estimates, Costs Up

KeyCorp’s first-quarter 2021 earnings of 61 cents per share easily surpassed the Zacks Consensus Estimate of 49 cents. Also, the bottom line improved substantially from 12 cents earned in the prior-year quarter.

Results benefited from a rise in revenues, robust loan and deposit balances, and provision benefit. However, lower rates and a rise in operating expenses were the headwinds.

Net income from continuing operations attributable to common shareholders was $591 million, up significantly from $118 million recorded in the year-ago quarter.

Revenues Improve & Expenses Increase

Total revenues grew 19.4% year over year to $1.75 billion. Also, the top line beat the Zacks Consensus Estimate of $1.70 billion.

Net interest income (on tax-equivalent basis) increased 2.3% year over year to $1.01 billion. The rise was attributed to higher earning asset balances and loan fees, partially offset by lower net interest margin (NIM).

Taxable-equivalent NIM from continuing operations decreased 40 basis points (bps) year over year to 2.61%.

Non-interest income was $738 million, surging 54.7%. The upswing was driven by increase in almost all fee income components except for service charges on deposit accounts, other income and corporate-owned life insurance income.

Non-interest expenses rose 15% from the prior year to $1.07 billion. The increase was mainly due to higher personnel costs.

At the first-quarter end, average total deposits were $137.4 billion, up 1.5% from the prior quarter. Average total loans were $100.7 billion, down 1%.

Credit Quality: Mixed Bag

Net loan charge-offs, as a percentage of average loans, increased 11 bps year over year to 0.46%. Allowance for loan and lease losses was $1.44 billion, up 5.8%.

However, provision for credit losses was a net benefit of $93 million against a provision of $359 million in the prior-year quarter. Provision benefit was mainly due to $207 million reserve release, which was largely driven by expected improvement in the economic outlook.

Further, non-performing assets, as a percentage of period-end portfolio loans, other real estate owned properties assets and other non-performing assets were 0.78%, down 4 bps.

Capital Ratios Mixed

KeyCorp's tangible common equity to tangible assets ratio was 7.5% as of Mar 31, 2021, down from 8.3% in the corresponding period of 2020. Also, Tier 1 risk-based capital ratio was 11.2%, up from 10.2% in the prior-year quarter.

Share Repurchase Update

During the quarter, KeyCorp repurchased shares worth $135 million.

2021 Outlook

Management expects average loan balances to be stable, reflecting continued momentum in consumer loan portfolios, the impact of paycheck protection program (PPP) and robust commercial loan growth in the second half of the year. Deposits are expected to increase by mid-single digits.

Tax-equivalent NII (including ongoing participation in PPP) is expected grow in low-single digit. NII will likely benefit from higher loan fees related to PPP forgiveness and continued deployment of some of the excess liquidity, offset by lower rates.

Further, the company expects non-interest income to be up by mid-single digits, reflecting growth in most of the core fee-based businesses.

Expenses are likely to be relatively stable.

Net charge-offs (NCOs) to average loans are expected to be in the 35-45 bps range.

GAAP tax rate is anticipated to be 19%.

Long-Term Targets

The company expects to achieve cash efficiency ratio of 54-56%.

NCO rate is expected to be 40-60 bps.

Return on tangible common equity (ROTCE) is expected to be 16-19%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 9.88% due to these changes.

VGM Scores

At this time, KeyCorp has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise KeyCorp has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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