KeyCorp currently trades at $18.34 per share and has shown little upside over the past six months, posting a middling return of 1.1%.
Is there a buying opportunity in KeyCorp, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is KeyCorp Not Exciting?
We don't have much confidence in KeyCorp. Here are three reasons why KEY doesn't excite us and a stock we'd rather own.
1. Net Interest Income Hits a Plateau
Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.
KeyCorp’s net interest income was flat over the last four years, much worse than the broader bank industry. This was driven by an increasing loan book and falling net interest margin, which represents how much a bank earns in relation to its outstanding loans.
2. Deteriorating Efficiency Ratio
Topline growth alone doesn't tell the complete story - the profitability of that growth shapes actual earnings impact. Banks track this dynamic through efficiency ratios, which compare non-interest expenses such as personnel, rent, IT, and marketing costs to total revenue streams.
Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.
Over the last four years, KeyCorp’s efficiency ratio has swelled by 37.1 percentage points, hitting 96.7% for the past 12 months. Said differently, the company’s expenses have increased at a faster rate than revenue, which is usually raises questions in mature industries (the exception is a high-growth company that reinvests its profits in attractive ventures).
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for KeyCorp, its EPS declined by 25.4% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Final Judgment
KeyCorp isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 1.2× forward P/B (or $18.34 per share). This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward the Amazon and PayPal of Latin America.
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