KeyCorp Shares Are A Notable Bargain Provided Management's Credit Estimates Prove Accurate

Like most banks, KeyCorp (KEY) finds itself in something of a profit growth no man’s land, as painfully low spreads, weak underlying loan demand, and rising credit costs conspire to limit organic growth opportunities. More specific to KeyCorp are lingering doubts that the company has truly reserved enough to withstand the upcoming default cycle in C&I credit – a cycle that may not peak until late in 2022 or early in 2023.

Even with those negatives in view, I thought KeyCorp was simply too cheap last quarter, trading as it did below tangible book. The shares have done a little better than the average peer bank since then (up more than 20%), which is probably a reasonable performance given the ongoing pressures on bank profit growth and the worries about reserve adequacy. For my part, I believe that KeyCorp’s reserves are a little better than they may otherwise seem, and I think this is a name that more aggressive investors can still consider.

 

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KeyCorp Shares Are A Notable Bargain Provided Management's Credit Estimates Prove Accurate