Banks stocks have gained solid momentum following Donald Trump’s surprise presidential victory, reflecting investors’ expectations of easing regulations and higher inflation. Further, with greater chances of Fed rate hike next month, undoubtedly the banking sector seems be an attractive investment option.
Among the several potential gainers, adding KeyCorp. (KEY - Free Report) to your portfolio should not disappoint. With assets over $135.8 billion, KeyCorp offers wide range of products and services, including commercial and retail banking, commercial leasing, investment management, consumer finance as well as investment banking products in 15 states, across a network of over 1,200 branches.
The Cleveland, OH-based banking giant continues to reflect strength in several areas, such as growing loans and deposits, improving credit quality and a strong capital position. Shares of KeyCorp surged 32.8% year to date, compared with the 18.7% increase of the KBW Nasdaq Bank Index. Notably, the attractiveness of this stock as an investment option at this stage is further underscored by its Momentum Style Score ‘B.’
KEYCORP NEW Price
Why is the Stock an Attractive Pick?
Revenue Growth: Organic growth remains the key strength at KeyCorp as total revenue grew at a compound annual growth rate (CAGR) of 2% over the last five years (2011–2015). We expect a consistent upward momentum in revenues with sustained growth in loans and potential rising interest rates in the near term as well as rising fee income. Notably, projected revenue growth (F1/F0) is currently stands at15.9%.
Benefit from First Niagara Acquisition: Top line is set to get boost from KeyCorp’s acquisition of First Niagara Financial Group which was completed in Jul 2016. The company expects an increase in average loans in fourth-quarter 2016 driven by the full-quarter impact of First Niagara acquisition. Also, management anticipates achieving $300 million worth of incremental revenues from synergies generated by the acquisition.
Focus on Cost Control: KeyCorp has reaped benefits from its expense reduction program – Fit for Growth – and remains focused on efforts, including streamlining operations, consolidating branches and offloading non-core assets to drive efficiency. The company expects to record elevated merger related charges in the fourth quarter. However, it projects cost savings tied with First Niagara acquisition of more than the target value of $400 million to be accrued by the second half of 2017, with full run rate to be reflected in 2018 results.
Steady Capital Deployment Activities: KeyCorp demonstrated its capital strength with the successful clearance of the Federal Reserve stress test and also won regulators’ approval for rewarding shareholders under its 2016 capital plan, which includes a share repurchase program of up to $350 million and an 11.8% increase in the quarterly dividend to $0.095 per share. Earlier, in May 2016, the company hiked its quarterly dividend by 13% to $0.085 per share as part of its 2015 capital plan.
Upward Estimates Revisions: Over the past 60 days, the Zacks Consensus Estimate for KeyCorp was up 4.7% to $1.11 per share for 2016 and 2.4% to $1.27 per share for 2017. The positive earnings estimate revisions indicate analysts’ confidence and substantiate the Zacks Rank #2 (Buy) for the stock.
Other Stocks to Consider
Bank of America Corporation (BAC - Free Report) : The Zacks Consensus Estimate for 2016 has moved up 15.7% to $1.47 per share for 2016 and 1.9% to $1.58 per share for 2017, in the last 60 days.
The Bank of New York Mellon Corporation (BK - Free Report) : Over the last 60 days, the Zacks Consensus Estimate for the current year increased 4% to $3.15 per share and climbed 3.6% to $3.42 per share for 2017.
Comerica Incorporated (CMA - Free Report) : Over the last 60 days, the Zacks Consensus Estimate for the current year grew 9.2% to $2.97 per share and climbed 10.4% to $3.92 per share for 2017.
Notably, all the three stocks carry a Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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