KeyCorp (KEY) Stock Jumps 38.1% YTD: Is More Upside Left?
Shares of KeyCorp KEY have surged 38.1% so far this year, outperforming the industry’s rally of 33.7%. The stock has also surpassed the S&P 500’s growth of 12.5% in the same time frame.
Also, the recent price movement of this Zacks Rank #2 (Buy) stock compares favorably with the disappointing performance of last year. The bank’s shares lost 18.9% in 2020, mainly owing to the investors’ bearish sentiments amid the concerns related to coronavirus mayhem. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, 2021 started on a positive note for banks. Optimism stemmed from an accelerated recovery of the banking industry, an extensive vaccination drive, additional government spending and expectation of robust economic growth. Further, KeyCorp’s improving loans and deposit balances, robust balance sheet and inorganic growth strategy supported bullish investor sentiments.
Year to Date Performance
Additionally, analysts are bullish on the stock. Over the past 30 days, the Zacks Consensus Estimate for 2021 and 2022 has been revised 2.9% and 1.5% upward, respectively.
Here are the major factors that are expected to keep supporting KeyCorp’s steady price appreciation:
Earnings Growth: KeyCorp has witnessed an earnings growth rate of 6.6% in the past three to five years. Further, its earnings are projected to surge 70.6% for 2021. Also, the company's earnings are anticipated to grow at a rate of 23% over the long term compared with the industry’s average of 11.5%.
Moreover, KeyCorp has a decent earnings surprise history. The company's earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with the average beat being 19.63%.
Revenue Strength: KeyCorp’s organic growth looks impressive. The company’s tax-equivalent revenues witnessed a compound annual growth rate (CAGR) of 2.1% in the last four years (2017-2020), largely driven by a consistent rise in loans and deposits, and increase in fee income sources.
Also, efforts to strengthen fee income are likely to keep driving KeyCorp’s top-line growth. This uptrend in revenues is anticipated to continue as reflected by the projected sales growth rate of 3.4% for 2021.
Strategic Acquisitions: KeyCorp has been engaged in a number of strategic buyouts. The acquisition of AQN Strategies LLC in March is part of its efforts to employ data-driven approaches and expand customer reach. Earlier in 2019, KeyCorp acquired Laurel Road Bank’s digital lending operation. These, along with several other acquisitions, are anticipated to keep boosting its profitability and market share as well as help diversify revenues.
Solid Balance Sheet Position: As of Mar 31, 2021, the company had a total debt of $13.5 billion, and cash and due from banks worth $938 million. Notably, only a small portion of its total debt is short term in nature. KeyCorp's times interest earned ratio of 9.2 at the end of first-quarter 2021 improved sequentially. Thus, given the decent earnings strength, it will be able to continue meeting debt obligations, even if the economic situation worsens.
Sustainable Capital Deployments: Amid the coronavirus-induced economic slowdown, the Federal Reserve had restricted dividends and share repurchases by major banks including KeyCorp, JPMorgan JPM, Bank of America BAC and Citigroup C with an aim to conserve liquidity last year. Nonetheless, following the second round of stress test, these restrictions were eased to some extent.
So, KeyCorp announced a new share buyback plan worth up to $900 million shares for the first three quarters of 2021, while maintaining dividend payment at 18.5 cents per share. As of Mar 31, 2021, $765 million worth of buyback authorization remained. Driven by a strong capital position and earnings strength, the company is expected to sustain efficient capital deployments.
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