On Thursday, Goldman Sachs reaffirmed its Buy rating and a $19.00 stock price target for KeyCorp (NYSE:KEY), following the company's third-quarter earnings report. KeyCorp disclosed a third-quarter 2024 earnings per share (EPS) of ($0.47).
However, after adjusting for one-time items, including a $918 million securities and a $6 million FDIC reversal, the core EPS is estimated at $0.30. This figure is marginally higher than the Visible Alpha Consensus Data prediction of $0.28, primarily due to lower core expenses, which were reported at $1.10 billion compared to the expected $1.12 billion.
KeyCorp's core pre-provision net revenue (PPNR) exceeded forecasts, coming in at $513 million against an anticipated $496 million. The favorable results were attributed to lower expenses and a stronger net interest income (NII), which was $952 million versus the consensus estimate of $938 million.
This helped to balance out weaker core fees, which were reported at $649 million, slightly below the consensus of $664 million. The beat in NII was driven by a higher average earning assets (AEA) of $171.99 billion, compared to a consensus of $170.28 billion, despite a drop in average loans.
The company's net interest margin (NIM) was slightly below expectations at 2.17%, with the consensus at 2.20%. Average deposits saw an increase of 2.5% to $147.77 billion, which was 1.9% above expectations. End-of-period demand deposit account (DDA) deposits increased by 0.9% quarter over quarter, leading to a deposit mix of 20.2%, which is higher than the 19.1% that was expected.
In terms of loan and securities yields, KeyCorp saw loan yields rise by 7 basis points quarter over quarter to 5.73%, aligning with expectations. Securities yields increased by 45 basis points quarter over quarter to 2.87%, although this was below the expected 3.07%, due to the restructuring of the securities portfolio. Interest-bearing deposit costs also went up by 11 basis points quarter over quarter to 2.96%, exceeding the expected 2.88%.
The provision for credit losses was lower than anticipated at $95 million, compared to a $104 million consensus. However, net charge-offs were higher than expected at approximately 0.58 basis points, against an expected 38 basis points.
Criticized loans decreased by 2% quarter over quarter and accounted for 6.5% of total loans, while nonperforming loans (NPLs) rose by 2.5% to 0.69%, up from 0.39% in the third quarter of 2023 and 0.66% in the second quarter of 2024.
KeyCorp's tangible book value per share (TBVPS) increased by 15.8% to $11.72. The company's common equity Tier 1 (CET1) capital grew by 30 basis points to 10.8%, and the adjusted CET1 capital grew by approximately 90 basis points quarter over quarter to about 8.6%.
Finally, KeyCorp updated its full-year 2024 guidance, reiterating a decrease in average loans by the end of the period, projecting higher fees and expenses, and confirming its net interest income forecast. The company also adjusted its net charge-off expectations to the higher end of the range, as previously anticipated.
Assuming the lower end of the net interest income guidance, fees slightly above the guide, and expenses in line with expectations, the implied fourth-quarter 2024 pre-provision net revenue is projected to be well below street expectations, as increased fees would be more than offset by higher expenses.
In other recent news, KeyCorp's earnings per share (EPS) have surpassed expectations, according to an analysis by Barclays, which maintained its Equalweight rating on the company with a $16 target. This performance was due to better-than-expected net interest income (NII) and managed expenses, despite fee-based revenues not meeting consensus estimates.
On a different note, Baird downgraded KeyCorp from Outperform to Neutral and lowered the price target to $17, citing the stock's significant increase in value.
In more recent developments, KeyCorp has sold about $7 billion of low-yielding investment securities, which is expected to result in an after-tax loss of approximately $700 million for the third quarter of 2024.
Despite this, the company has revised its 2024 fee income guidance upwards and maintained its net interest income forecast. KeyCorp also sold a nearly 15% minority stake to Scotiabank, which is projected to contribute approximately $400 million to the company's net interest income through 2025.
Analysts from firms such as Piper Sandler and Citi have maintained positive ratings on KeyCorp. Citi increased its EPS forecast for 2025 by $0.05 to $1.55, while Piper Sandler reaffirmed its Overweight rating, indicating confidence in the bank's future financial performance.
Meanwhile, Jefferies increased its price target for KeyCorp shares to $19.00, maintaining a Buy rating. These are all recent developments that investors should take into account when considering KeyCorp.
InvestingPro Insights
KeyCorp's recent financial performance, as outlined in the article, can be further contextualized with some key metrics from InvestingPro. The company's P/E ratio of 22.87 and adjusted P/E ratio of 20.6 for the last twelve months as of Q2 2024 suggest that investors are willing to pay a premium for KeyCorp's earnings, possibly due to its growth prospects or market position.
InvestingPro Tips highlight that KeyCorp has maintained dividend payments for 53 consecutive years, demonstrating a strong commitment to shareholder returns. This is particularly noteworthy given the current dividend yield of 4.63%, which may be attractive to income-focused investors. Moreover, the company has seen a large price uptick over the last six months, with InvestingPro data showing a 25.95% price total return over this period.
However, it is important to note that 7 analysts have revised their earnings downwards for the upcoming period, which aligns with the article's mention of potential challenges in the fourth quarter of 2024. This could be related to the company's revenue growth, which InvestingPro data shows as -10.07% for the last twelve months as of Q2 2024.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that could provide a deeper understanding of KeyCorp's financial health and market position.
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