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 (KEY) Up 5.6% Since Earnings Report: Can It Continue?
Read MoreHide Full Article
A month has gone by since the last earnings report for KeyCorp (KEY - Free Report) . Shares have added about 5.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is KEY due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
KeyCorp Q1 Earnings In Line; Revenues & Costs Up
KeyCorp first-quarter 2018 earnings of 38 cents per share came in line with the Zacks Consensus Estimate. Also, this compares favorably with adjusted earnings of 32 cents per share recorded in the prior-year quarter.
Improvement in both net interest income and fee income drove results. Further, a decline in provision for credit losses and improving loans acted as tailwinds. However, an increase in expenses was on the downside.
Net income from continuing operations was $402 million, up from $296 million registered in the prior-year quarter.
Revenues Improve, Expenses Rise
Total revenues grew 3.1% year over year to $1.55 billion. However, the figure marginally lagged the Zacks Consensus Estimate of $1.56 billion.
Tax-equivalent net interest income went up 2.5% year over year to $952 million. The rise was attributable to benefits from low deposit betas and elevated interest rates. Also, taxable-equivalent net interest margin from continuing operations improved 2 basis points (bps) year over year to 3.15%.
Non-interest income was $601 million, reflecting an increase of 4.2% from the year-ago quarter. The increase was driven by an improvement in all components except trust and investment services income, cards and payments income along with other income.
Non-interest expenses (excluding notable items) increased 7.9% year over year to $1.01 billion. The rise was due to higher personnel costs, largely due to recent acquisitions as well as accelerated technology investments and higher performance-based compensation.
Strong Balance Sheet
At the end of the first quarter, average total deposits were $102.56 billion, down 1.2% from the prior quarter. Average total loans were $86.93 billion, up 1.1% sequentially.
Credit Quality: A Mixed Bag
Net loan charge-offs, as a percentage of average loans, decreased 2 bps year over year to 0.25%. Provision for credit losses declined 3.2% year over year to $61 million.
Further, non-performing assets, as a percentage of period-end portfolio loans, other real estate owned properties assets and other nonperforming assets were 0.65%, down 7 bps year over year.
However, KeyCorp’s allowance for loan and lease losses was $881 million, up 1.3% from the prior-year quarter.
Capital Position
KeyCorp's tangible common equity to tangible assets ratio was 8.22% as of Mar 31, 2018, down from 8.51% as of Mar 31, 2017. However, Tier 1 risk-based capital ratio was 10.84%, up from 10.74% as of Mar 31, 2017.
The company’s estimated Basel III Common Equity Tier 1 ratio was 9.88% at the end of the quarter.
Share Repurchases
During the reported quarter, KeyCorp repurchased $199 million worth of shares as part of its 2017 capital plan.
2018 Outlook
Management expects average loan balance to be in the $88.5-$89.5 billion range. Average deposits are expected to be in the range of $104.5-$105.5 billion.
Further, net interest income (FTE basis) is anticipated to increase and be in the range of $3.95-$4.05 billion. This is based on the assumption of a rate hike in June and another one in November.
Core NIM (excluding purchase accounting accretion) is anticipated to rise marginally, driven by two rate hikes and continued loan growth.
Purchase accounting accretion is expected to decline 10% on a quarterly basis from the first quarter 2018 level.
Non-interest income is expected to be in the range of $2.5-$2.6 billion.
KeyCorp expects operating expenses (excluding merger-related charges) to be in the range of $3.85-$3.95 billion. This includes remaining First Niagara cost savings of $50 million, which is expected to be fully reflected in second quarter 2018 results.
Notably, the company expects to approach toward the high end of its long-term efficiency ratio target of 54.
Management projects to achieve $300 million of incremental revenues synergies from the First Niagara deal by 2019-end.
Net charge-offs to average loans are anticipated to stay below the target range of 40-60 bps. However, the company expects relatively higher provisions driven by loan growth.
The effective tax rate (GAAP basis) is likely to be 17-18%.
Long-term Targets
Management expects to continue generating positive operating leverage. Cash efficiency ratio is projected to be in the range of 54-56%, return on tangible common equity of 15-18% and net charge-offs to average loans between 40-60 bps.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter compared to one lower.
At this time, KEY has a poor Growth Score of F, however its Momentum is doing a lot better with a C. The stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, KEY has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
KeyCorp (KEY) Up 5.6% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for KeyCorp (KEY - Free Report) . Shares have added about 5.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is KEY due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
KeyCorp Q1 Earnings In Line; Revenues & Costs Up
KeyCorp first-quarter 2018 earnings of 38 cents per share came in line with the Zacks Consensus Estimate. Also, this compares favorably with adjusted earnings of 32 cents per share recorded in the prior-year quarter.
Improvement in both net interest income and fee income drove results. Further, a decline in provision for credit losses and improving loans acted as tailwinds. However, an increase in expenses was on the downside.
Net income from continuing operations was $402 million, up from $296 million registered in the prior-year quarter.
Revenues Improve, Expenses Rise
Total revenues grew 3.1% year over year to $1.55 billion. However, the figure marginally lagged the Zacks Consensus Estimate of $1.56 billion.
Tax-equivalent net interest income went up 2.5% year over year to $952 million. The rise was attributable to benefits from low deposit betas and elevated interest rates. Also, taxable-equivalent net interest margin from continuing operations improved 2 basis points (bps) year over year to 3.15%.
Non-interest income was $601 million, reflecting an increase of 4.2% from the year-ago quarter. The increase was driven by an improvement in all components except trust and investment services income, cards and payments income along with other income.
Non-interest expenses (excluding notable items) increased 7.9% year over year to $1.01 billion. The rise was due to higher personnel costs, largely due to recent acquisitions as well as accelerated technology investments and higher performance-based compensation.
Strong Balance Sheet
At the end of the first quarter, average total deposits were $102.56 billion, down 1.2% from the prior quarter. Average total loans were $86.93 billion, up 1.1% sequentially.
Credit Quality: A Mixed Bag
Net loan charge-offs, as a percentage of average loans, decreased 2 bps year over year to 0.25%. Provision for credit losses declined 3.2% year over year to $61 million.
Further, non-performing assets, as a percentage of period-end portfolio loans, other real estate owned properties assets and other nonperforming assets were 0.65%, down 7 bps year over year.
However, KeyCorp’s allowance for loan and lease losses was $881 million, up 1.3% from the prior-year quarter.
Capital Position
KeyCorp's tangible common equity to tangible assets ratio was 8.22% as of Mar 31, 2018, down from 8.51% as of Mar 31, 2017. However, Tier 1 risk-based capital ratio was 10.84%, up from 10.74% as of Mar 31, 2017.
The company’s estimated Basel III Common Equity Tier 1 ratio was 9.88% at the end of the quarter.
Share Repurchases
During the reported quarter, KeyCorp repurchased $199 million worth of shares as part of its 2017 capital plan.
2018 Outlook
Management expects average loan balance to be in the $88.5-$89.5 billion range. Average deposits are expected to be in the range of $104.5-$105.5 billion.
Further, net interest income (FTE basis) is anticipated to increase and be in the range of $3.95-$4.05 billion. This is based on the assumption of a rate hike in June and another one in November.
Core NIM (excluding purchase accounting accretion) is anticipated to rise marginally, driven by two rate hikes and continued loan growth.
Purchase accounting accretion is expected to decline 10% on a quarterly basis from the first quarter 2018 level.
Non-interest income is expected to be in the range of $2.5-$2.6 billion.
KeyCorp expects operating expenses (excluding merger-related charges) to be in the range of $3.85-$3.95 billion. This includes remaining First Niagara cost savings of $50 million, which is expected to be fully reflected in second quarter 2018 results.
Notably, the company expects to approach toward the high end of its long-term efficiency ratio target of 54.
Management projects to achieve $300 million of incremental revenues synergies from the First Niagara deal by 2019-end.
Net charge-offs to average loans are anticipated to stay below the target range of 40-60 bps. However, the company expects relatively higher provisions driven by loan growth.
The effective tax rate (GAAP basis) is likely to be 17-18%.
Long-term Targets
Management expects to continue generating positive operating leverage. Cash efficiency ratio is projected to be in the range of 54-56%, return on tangible common equity of 15-18% and net charge-offs to average loans between 40-60 bps.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter compared to one lower.
KeyCorp Price and Consensus
KeyCorp Price and Consensus | KeyCorp Quote
VGM Scores
At this time, KEY has a poor Growth Score of F, however its Momentum is doing a lot better with a C. The stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, KEY has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.