We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
KeyCorp's (KEY) Expansion Efforts, High Rates Aid Amid Cost Woes
Read MoreHide Full Article
KeyCorp (KEY - Free Report) is well-placed for top-line growth, supported by the rise in loan balances and higher interest rates. Its strategic restructuring initiatives bode well for long-term growth. However, elevated expenses and deteriorating asset quality are headwinds.
KeyCorp has been witnessing robust organic growth over the past several years. Though its tax-equivalent revenues declined in 2019, 2022 and the first nine months of 2023, the same witnessed a compound annual growth rate (CAGR) of 3.1% over the last five years ended 2022. During the four-year period ended 2022, loans witnessed a CAGR of 7.5% and deposits saw a CAGR of 7.4%.
Aided by the steady rise in the demand for loans, along with the company’s efforts to strengthen fee income, its top line is expected to keep improving. Though we project total revenues to decline 11.8% in 2023, it will rebound and grow 1.5% and 6.7% in 2024 and 2025, respectively.
Supported by higher rates and loan growth, KeyCorp’s net interest margin (NIM) is likely to witness growth, while the pace of expansion will slow down on higher funding costs. The company’s NIM from continuing operations was 2.64% in 2022 compared with 2.50% in 2021. Though the metric witnessed a decline in the first nine months of 2023 on rising deposit costs, the same is expected to improve in the near term, supported by higher rates. We anticipate NIM to be 2.22%, 2.32% and 2.47% in 2023, 2024 and 2025, respectively.
KeyCorp is expected to strengthen its product suites and market share through the buyouts/expansion initiatives. The company is expected to continue with opportunistic acquisitions, which are likely to further help diversify revenues. Also, as demand for digital banking services continues to rise, it has been consolidating its branch network, with management looking for opportunities to right-size its footprint. Thus, the company is expected to keep witnessing fee income growth going forward.
Analysts also seem optimistic regarding KEY’s earnings growth prospects. The Zacks Consensus Estimate for 2023 earnings has been revised marginally upwards over the past seven days. Further, KEY currently carries a Zacks Rank #3 (Hold).
Over the past three months, shares of KEY have gained 32.5% compared with the industry's growth of 19.3%.
Image Source: Zacks Investment Research
However, KEY continues to record a rise in non-interest expenses. Though the metric declined in 2018 and 2019, it witnessed a CAGR of 1.5% over the last five years (2017-2022). The rise was mainly due to higher personal costs. The upward trend in expenses continued in the first nine months of 2023. The company’s investments in franchises, technological upgrades, inorganic growth strategy and inflationary pressure will likely keep costs elevated in the near term. We anticipate total non-interest expenses to witness a CAGR of 1.3% over the three years ended 2025.
Weak asset quality is another major headwind for KeyCorp. Though provision for credit losses was a benefit in 2021, the same increased in 2019, 2020 and 2022. Similarly, while net charge-offs (NCOs) declined in both 2021 and 2022, the metric increased in the two years prior to this.
Again, in the first nine months of 2023, both provisions and NCOs witnessed an increase. Going forward, the expectation of a worsening macroeconomic outlook is likely to weaken the asset quality. We project provision for credit losses and NCOs to rise 13.7% and 68.5%, respectively, in 2023.
The Zacks Consensus Estimate for State Street's 2023 earnings has been revised marginally upward over the past seven days. Its shares have gained 16.6% over the past three months.
The consensus mark for Northern Trust's 2023 earnings has been revised marginally upward over the past seven days. In the past three months, NTRS shares have rallied 21.7%.
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
KeyCorp's (KEY) Expansion Efforts, High Rates Aid Amid Cost Woes
KeyCorp (KEY - Free Report) is well-placed for top-line growth, supported by the rise in loan balances and higher interest rates. Its strategic restructuring initiatives bode well for long-term growth. However, elevated expenses and deteriorating asset quality are headwinds.
KeyCorp has been witnessing robust organic growth over the past several years. Though its tax-equivalent revenues declined in 2019, 2022 and the first nine months of 2023, the same witnessed a compound annual growth rate (CAGR) of 3.1% over the last five years ended 2022. During the four-year period ended 2022, loans witnessed a CAGR of 7.5% and deposits saw a CAGR of 7.4%.
Aided by the steady rise in the demand for loans, along with the company’s efforts to strengthen fee income, its top line is expected to keep improving. Though we project total revenues to decline 11.8% in 2023, it will rebound and grow 1.5% and 6.7% in 2024 and 2025, respectively.
Supported by higher rates and loan growth, KeyCorp’s net interest margin (NIM) is likely to witness growth, while the pace of expansion will slow down on higher funding costs. The company’s NIM from continuing operations was 2.64% in 2022 compared with 2.50% in 2021. Though the metric witnessed a decline in the first nine months of 2023 on rising deposit costs, the same is expected to improve in the near term, supported by higher rates. We anticipate NIM to be 2.22%, 2.32% and 2.47% in 2023, 2024 and 2025, respectively.
KeyCorp is expected to strengthen its product suites and market share through the buyouts/expansion initiatives. The company is expected to continue with opportunistic acquisitions, which are likely to further help diversify revenues. Also, as demand for digital banking services continues to rise, it has been consolidating its branch network, with management looking for opportunities to right-size its footprint. Thus, the company is expected to keep witnessing fee income growth going forward.
Analysts also seem optimistic regarding KEY’s earnings growth prospects. The Zacks Consensus Estimate for 2023 earnings has been revised marginally upwards over the past seven days. Further, KEY currently carries a Zacks Rank #3 (Hold).
Over the past three months, shares of KEY have gained 32.5% compared with the industry's growth of 19.3%.
Image Source: Zacks Investment Research
However, KEY continues to record a rise in non-interest expenses. Though the metric declined in 2018 and 2019, it witnessed a CAGR of 1.5% over the last five years (2017-2022). The rise was mainly due to higher personal costs. The upward trend in expenses continued in the first nine months of 2023. The company’s investments in franchises, technological upgrades, inorganic growth strategy and inflationary pressure will likely keep costs elevated in the near term. We anticipate total non-interest expenses to witness a CAGR of 1.3% over the three years ended 2025.
Weak asset quality is another major headwind for KeyCorp. Though provision for credit losses was a benefit in 2021, the same increased in 2019, 2020 and 2022. Similarly, while net charge-offs (NCOs) declined in both 2021 and 2022, the metric increased in the two years prior to this.
Again, in the first nine months of 2023, both provisions and NCOs witnessed an increase. Going forward, the expectation of a worsening macroeconomic outlook is likely to weaken the asset quality. We project provision for credit losses and NCOs to rise 13.7% and 68.5%, respectively, in 2023.
Bank Stocks Worth a Look
A couple of better-ranked stocks from the banking space are State Street (STT - Free Report) and Northern Trust (NTRS - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for State Street's 2023 earnings has been revised marginally upward over the past seven days. Its shares have gained 16.6% over the past three months.
The consensus mark for Northern Trust's 2023 earnings has been revised marginally upward over the past seven days. In the past three months, NTRS shares have rallied 21.7%.