On Mar 10, 2014, we issued an updated research report on KeyCorp. KEY. Prudent expense management as well as improving loan and deposit balances remain the company’s primary strengths, while declining net interest margin (“NIM”), which is straining revenue growth, makes us apprehensive.
KeyCorp’s expense reduction program – Fit for Growth – continues to see success, with non-interest expenses declining at a 5-year CAGR of 2.6% (2010–2014). The company expects expenses to be relatively stable on a year-over-year basis in 2015.
Moreover, KeyCorp has been persistently streamlining its operations, diversifying products and exiting unfit businesses to propel efficiency and growth. Since 2012, the company has closed nearly 100 branches.
Further, though revenues in 2014 reflected flattish growth, we expect that improvement in loans and deposits will accelerate top-line growth going forward. Management projects net interest income to increase in the low-to-mid-single digit range in 2015, while non-interest income is predicted to grow at a mid-single digit rate.
On the flip side, though KeyCorp looks forward to boost revenues in the upcoming quarters, the strain on NIM, triggered by lower asset yields, cannot be overlooked. Moreover, we believe that NIM pressure will continue in the near term due to a still low interest-rate environment.
The pressure on revenues led the analysts to express mixed outlook for KeyCorp’s future prospects. Over the last 30 days, the Zacks Consensus Estimate for 2015 has remained flat at $1.13 per share, while for 2016, it fell by a penny to $1.27 per share.
KeyCorp carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked banks include Northern Trust Corp. NTRS, Citigroup Inc. C and Huntington Bancshares Inc. HBAN. All these stocks hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment