KeyCorp (KEY - Free Report) continues to benefit from solid organic growth, strategic buyouts and a healthy balance sheet. However, near-zero interest rates and the coronavirus-induced economic slowdown are major near-term concerns.
KeyCorp’s organic growth looks impressive. The company witnessed a CAGR of 10.7% in revenues over the last five years (2015-2019). During the same period, loans witnessed a CAGR of 12.1% and deposits saw a CAGR of 12%. The uptrend for both loans and deposits continued in the first quarter. Though the tax equivalent revenues declined in the first quarter primarily on lower interest rates, decent growth in loans and deposit balances will likely keep supporting top-line growth.
The bank is also in a favorable debt position compared with the industry. KeyCorp’s total debt to total capital of 44.09% is lower than the industry average of 49.85%. Also, the ratio has been declining for the past few quarters. Further, its times-interest-earned ratio of 4.79 is lower than the industry’s average of 3.04.Thus, given the earnings strength, the company has lower credit risk and is less likely to default in interest/debt payments in case the economic situation worsens further.
However, lower interest rates are expected to hurt the company’s net interest margin (NIM). Amid lower rates, KeyCorp’s net interest margin (NIM) declined to 3.04% in 2019 from 3.17% in both 2018 and 2017. Its NIM is expected to remain under pressure in the near term as there is a lesser chance that the central bank will raise rates anytime soon.
The continued rise in expenses over the past few years has also been a cause of concern for the company. Though KeyCorp’s $200-million cost-reduction program led to a decline in expenses in 2019, the same witnessed a five-year (2015-2019) CAGR of 8.3%. This trend is likely to persist with the company’s focus on technological upgrades and inorganic growth strategies.
Further, the Zacks Consensus Estimate for earnings has been revised 18.8% and 6% downward for 2020 and 2021, respectively over the past month.
Also, shares of this Zacks Rank #3 (Hold) company have lost 51% so far this year compared with the 42.6% decline recorded by the industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
Mid Penn Bancorp, Inc.’s (MPB - Free Report) Zacks Consensus Estimate for the current-year earnings moved 42% north to $2.30 over the past month. The stock currently carries a Zacks Rank of 2 (Buy).
Merchants Bancorp’s (MBIN - Free Report) Zacks Consensus Estimate for 2020 earnings moved 15.9% upward to $2.33 over the past month. The stock currently holds a Zacks Rank of 2.
Eagle Bancorp Montana, Inc.’s (EBMT - Free Report) Zacks Consensus Estimate for earnings moved 7.5% upward to $2.16 in one month’s time for 2020. The stock currently carries a Zacks Rank of 2.
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