What’s So Special About KeyCorp?

With shares of KeyCorp (NYSE:KEY) trading at around $8.96, is KEY an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

The answer to the question in the title is: nothing. At first glance, you might think that’s a negative. However, that’s not the case at all. Look at the banking industry over the past decade. Exotic and creative schemes is what got banks into trouble. Perhaps greed was the biggest player of all, but when it comes to banking, exotic and creative lead to greed. They are avenues to accomplish a devilish goal. Let’s refrain from going on too much of a tangent here. The ultimate point is that KeyCorp is returning to lending, which is what banks should be about. This is also a company that has been around for 160 years, yet it still only does business in 14 states. That’s discipline.

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KeyCorp is getting a lot of love from the street right now. Terry McEvoy of Oppenheimer Securities upgraded the stock to Outperform from Perform, and set a price target of $11.00. The catalyst is expected to be improved geographic strategy. Jim Cramer feels the same way. He loves the stock and feels that the company will benefit from a resurgence in the heartland. He also stated that KeyCorp was “an undervalued regional.”

Let’s take a look at some important numbers for KeyCorp.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for KeyCorp is normal. The balance sheet could use a little help, but ratio-wise, it’s pretty strong for the industry.

Debt-To-Equity

Cash

Long-Term Debt

KEY

0.80

$3.85 Billion

$6.12 Billion

PNC

1.03

$10.99 Billion

$28.50 Billion

STI

0.96

$11.99 Billion

$10.76 Billion

 

T = Technicals on the Stock Chart Are Strong

KeyCorp has performed well over the past three years. It has outperformed PNC Financial Services Group Inc. (NYSE:PNC) and SunTrust Banks (NYSE:STI) over that timeframe. However, the past year has belonged to SunTrust Banks.

1 Month

Year-To-Date

1 Year

3 Year

KEY

10.55%

6.41%

14.82%

43.72%

PNC

7.99%

3.34%

3.12%

11.09%

STI

6.61%

2.19%

47.90%

27.95%

 

At $8.96, KeyCorp is trading above all its averages.

50-Day SMA

8.34

100-Day SMA

8.47

200-Day SMA

8.15

 

E = Earnings Have Been Uninspiring

You weren’t expecting all positives, were you? No company/stock is perfect. In this case, annual revenue has been weakening, but there is much optimism for growth in the future. Whether that optimism will turn into results or not remains to be seen. On the positive side (yes… more positives,) KeyCorp has been improving annual EPS since 2008.

2007

2008

2009

2010

2011

Revenue ($)in billions

7.58

6.20

5.83

5.37

4.70

Diluted EPS ($)

2.32

-3.36

-2.34

0.44

0.87

 

When we look at last quarter on a YoY basis, we see a slight increase in revenue and earnings.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

1.19

1.11

1.16

1.15

1.22

Diluted EPS ($)

0.22

0.21

0.20

0.24

0.23

T = Trends Support the Industry

If you want to know the trend for the industry, simply look at the stock performance numbers listed previously. This industry hit bottom in early 2009. The only way to go was up. Of course, Federal Reserve policies helped.  

Conclusion

KeyCorp has solid margins, decent cash flow, a good reputation on the street, a superb reputation for quality customer service, and it’s making acquisitions to accelerate growth. It yields 2.20 percent, and the Forward P/E is 10.42.

KeyCorp is an OUTPERFORM.

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