I didn’t expect KeyCorp (KEY) to turn on a dime and rocket higher this year, the bank really isn’t built for that, but I have to admit that watching the shares of this relatively unloved bank is not much more fun than watching paint dry. Add in weaker than expected spread-based earnings momentum and less operating leverage, and it’s not easy to continue waiting for better results.
My thesis on KeyCorp has never been that it’s a great bank, only that management has put some meaningful improvements in place and it’s better than what is reflected in the valuation. The shares have returned another 20% or so since my last update, a little better than regional banks as a group and the S&P 500, but not enough to make anyone stand up and take notice.
At this point I do still see upside in the shares, but I can’t really argue strongly for this name over banks that are likely to generate more revenue, pre-provision profit, and/or tangible book value growth over the next few years, and/or that trade at even lower multiples. I still think the valuation is undemanding below $23, but this is going to take more time and more momentum in the business to really work.
Read the full article here:
KeyCorp: Testing Patience With Weaker Commercial Activity And Operating Leverage
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