Will KeyCorp (KEY) Be Able To Overcome Top Line Pressure? - Analyst Blog

On Sep 9, 2014, we issued an updated research report on KeyCorp. (KEY). Prudent expense management and an improving asset quality remained the bank’s key strength while the declining net interest income (NII), which pressured the top line, remained a concern.

KeyCorp, which offers customers a diversified mix of products and services, has been consistently capitalizing on available opportunities like acquisitions and streamlining of operations and businesses to propel growth. Moreover, in spite of the increased regulatory and restructuring costs, the company has remarkably managed to trim down expenses, giving it a competitive edge over its peers.

Shifting the focus on KeyCorp’s capital deployment activities, in May 2014, the quarterly cash dividend was raised 18% to 6.5 cents per share. Also, the company’s sustained initiatives to return capital to shareholders exhibit an efficient share repurchase program in place. The growing investors’ confidence could be witnessed in the 2.8% year-to-date rise in share price.

On the flip side, though the bank looks forward to an enhanced revenue generation in the upcoming quarters, the strain on NII triggered by lower asset yields cannot be overlooked. Moreover, the rampant competitive environment is expected to keep NII pressurized through the remainder of the year.

Also, KeyCorp’s increased exposure to home equity and commercial real estate loans makes it more vulnerable to the ongoing low interest rate situation and the slowly recovering housing sector.

On the whole, KeyCorp’s improving asset quality, consistent loan and deposits growth and healthy liquidity position represent the potential for future growth. However, the persistent margin compression, escalating competition, stringent regulatory landscape and uncertain economic conditions keep us on edge.

This can also be observed in the Zacks Consensus Estimate for 2014, which remained flat over the last 30 days and decreased by a penny for 2015 over the same time period.

Currently, KeyCorp carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some better-ranked banks include S&T Bancorp Inc. (STBA), United Financial Bancorp, Inc. (UBNK) and Heartland Sierra Bancorp (BSRR). All these stocks sport a Zacks Rank #1 (Strong Buy).

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