On Friday, KeyCorp (NYSE: NYSE:KEY) shares saw its price target increased to $18.00 from $16.00 by DA Davidson, while the firm retained a Buy rating on the stock. The adjustment comes in light of KeyCorp's maintained outlook for Net Interest Income (NII) in 2024. Despite anticipations of weaker loan performance, KeyCorp expects a decline in NII of 2 to 5 percent, leaning closer to a 5 percent drop if two rate cuts occur.
KeyCorp's NII is projected to gain from an improved deposit forecast and is set to benefit from the repricing of $9.3 billion in swaps and treasuries, which currently yield around 0.50 percent. This repricing is expected to contribute an additional $120 to $125 million to the NII in the second half of 2024.
The financial institution has also kept its forecast for a 10 percent or more increase in NII for the fourth quarter of 2024 compared to the same quarter in 2023, aiming to surpass $1 billion. This prediction is supported by an anticipated expansion in the Net Interest Margin (NIM) from 2.04 percent in the second quarter of 2024 to between 2.40 and 2.50 percent.
DA Davidson projects KeyCorp to lead its peers with a 15 percent NII growth in 2025, driven by strong momentum going into the fourth quarter of 2024. The raised price target of $18 reflects a target P/E multiple of 10.9 times the firm's 2025 earnings per share forecast of $1.60.
In other recent news, major U.S. banks are preparing for the Federal Reserve's annual stress tests, expected to maintain ample capital reserves while being conservative with shareholder payouts amid economic and regulatory uncertainties. Analysts from Keefe, Bruyette & Woods anticipate strong performances from Citigroup, Goldman Sachs (NYSE:GS), and M&T Bank. Mid-sized lenders, including KeyCorp, are also expected to draw attention.
KeyCorp has been in the news recently due to its second quarter 2024 net interest income (NII) possibly falling short of the company's expectations, attributed to slower-than-anticipated loan growth. Despite a projected decline in investment banking revenues for Q2 2024, the company's full-year 2024 forecasts remain unchanged.
Piper Sandler reaffirmed its Overweight rating on KeyCorp following a meeting with the company's senior management and institutional investors. The firm noted KeyCorp's confidence about the NII progression, even under various economic scenarios.
KeyCorp also recently declared dividends for Q2 2024 across its common and preferred stock categories. The corporation announced a cash dividend of $0.205 per common share, along with dividends on various series of preferred stock.
Finally, U.S. mid-sized banks, including KeyCorp, are facing a challenging financial landscape as first-quarter profits have declined. Despite these challenges, analysts remain optimistic about KeyCorp's ability to navigate the financial headwinds.
InvestingPro Insights
KeyCorp's financial outlook, as reflected in its Net Interest Income projections, is complemented by a set of data and insights from InvestingPro that may be of interest to investors. With a market capitalization of $14.67 billion and a trailing twelve-month Price/Earnings (P/E) ratio of 18.69, KeyCorp presents a value proposition to those looking at traditional valuation metrics. The company's dividend yield stands at a notable 5.27%, which is particularly appealing for income-focused investors, especially considering KeyCorp's impressive track record of maintaining dividend payments for over 53 years—an InvestingPro Tip that underscores the firm's commitment to shareholder returns.
Another InvestingPro Tip highlights that KeyCorp has experienced a strong return over the last month, with a 14.58% total return, aligning with the positive momentum indicated by DA Davidson's analysis. Investors can find additional insights and over a dozen more InvestingPro Tips by visiting InvestingPro's KeyCorp page, which may further inform investment decisions. To access these insights, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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