The last three to six months have been good ones for banks, as investors have grown more comfortable with the credit risk outlook, not to mention the prospect of an economic recovery and modest rate improvements in 2021. Spread revenue growth is still going to be challenging, loan growth is likely to remain weak (apart from another round of PPP loans), and charge-offs will still be rising, but the storm has largely passed.
KeyCorp (KEY) was one of my recommended ideas back in August of 2020, as I thought the Street was overestimating the credit risk and underestimating both the fee-based income and operating leverage potential. Since then, the shares have outperformed other regional banks by a bit, though not as much as I would have hoped. While there is a real debate to be had over whether Key can achieve its targeted positive operating leverage in 2021, and results are likely to be messy for a couple of years, I do believe Key stands out on a valuation basis, and this is a name still worth considering.
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KeyCorp Is Focused On The Right Details And Undervalued Going Into 2021
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