Improving operating backdrop, a rising rate environment and easing of regulations along with the strengthening of domestic economy, should keep supporting the performance of banking stocks. Keeping these in mind, we have selected KeyCorp (KEY - Free Report) for you to consider.
The bank continues to reflect strength in several areas, such as rising loans and deposits, improving credit quality and a strong capital position. Driven by these positives, analysts seem to be optimistic about KeyCorp’s prospects. In the last 60 days, the Zacks Consensus Estimate for both 2018 and 2019 has increased nearly 1%.
Also, the Zacks Rank #2 (Buy) stock has gained 1.9% so far this year against the industry’s decline of 2.8%.
Why is the Stock a Solid Choice?
Revenue growth: Organic growth remains a key strength for KeyCorp. The company’s revenues (tax equivalent basis) have seen a CAGR of 15.3% over the last four years (2014-2017).
Sustained growth in loans and rising interest rates as well as higher fee income will likely continue aiding the top line. Also, the synergies from the First Niagara deal are projected to continue over the next few years. The company’s projected sales growth rate of 3.6% and 4.6% for 2018 and 2019, respectively, ensures continuation of the upward revenue trend.
Earnings strength: KeyCorp witnessed earnings growth of 8.7% in the last three to five years, above the industry average of 5.3%. This earnings momentum is likely to continue in the near term as reflected by the company’s projected EPS growth rate (F1/F0) of 33% compared with the industry’s increase of 30.7%.
Further, the company’s long-term (three to five years) estimated EPS growth rate of 9.5% promises rewards for investors in the long run.
Strong asset quality: Improving credit quality continues to be a catalyst for KeyCorp. The bank has been witnessing a decline in provision for loan losses over the past several quarters. Further, in 2018, management anticipates net charge-offs rate to be lower than the target range of 40-60 basis points while provisions are expected to rise modestly, given the loan growth.
Impressive capital deployment activities: Driven by its capital strength, KeyCorp’s capital deployment activities are impressive. In May, the company announced a 14.3% dividend hike (part of its 2017 capital plan) and it has a share buyback plan in place.
Also, the bank has been growing inorganically as well. In 2017, it acquired Cain Brothers and HelloWallet while in 2016, the company acquired First Niagara. With the results of this year’s stress test coming out soon, the company should be able to deploy more capital, thereby rewarding its shareholders.
Other Stocks to Consider
Some other bank stocks worth a look include Fifth Third Bancorp (FITB - Free Report) , Comerica Incorporated (CMA - Free Report) and Cullen/Frost Bankers, Inc. (CFR - Free Report) .
Fifth Third Bancorp’s earnings estimates moved 6.4% upward for the current year, in the past 60 days. Also, its shares have seen a 22.2% rise over the past year. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Comerica stock has gained 33.8% over the past year. Its earnings estimates for 2018 have moved up 1.2% in the last 60 days. The stock carries a Zacks Rank #2.
Also carrying a Zacks Rank #2, Cullen/Frost Bankers stock has gained 24.9% over the past year. Its earnings estimates for 2018 have moved up 6% in the last 60 days.
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