On Monday, DA Davidson announced an increase in the stock price target for KeyCorp (NYSE: NYSE:KEY), moving it to $20.00 from the previous $19.00, while reiterating a Buy. The firm's analysis suggests that KeyCorp is positioned for significant positive leverage in 2025, maintaining its Net Interest Income (NII) growth forecast of over 20%. This anticipated growth is supported by a robust momentum in fee income, particularly from the investment banking sector.
The financial institution is also expected to keep expense growth to a low to mid-single digit range. Despite projecting that fourth-quarter expenses will surpass initial estimates, DA Davidson notes that some of these costs are one-time investments aimed at capitalizing on opportunities for 2025. The analyst's commentary underscores the company's strategic moves to strengthen its position for the mid-term future.
In terms of credit quality, KeyCorp is of the view that non-performing assets (NPAs) are nearing their peak and anticipates a further decline in criticized loans. Moreover, the bank has succeeded in bolstering its capital levels, which adds to the positive outlook. The revised price target of $20 reflects a target P/E multiple of 12.0 times the firm's 2025 earnings per share (EPS) forecast of $1.57.
DA Davidson's outlook for KeyCorp is based on several factors including the bank's income prospects, expense management, and credit and capital strength. The firm's confidence in KeyCorp's financial strategy and execution is evident in the maintained Buy rating and uplifted price target. The analyst's statement concludes with an affirmation of the Buy rating and the updated price target, signaling optimism for KeyCorp's financial performance leading into 2025.
In other recent news, KeyCorp has been a focal point for investors following a series of developments. RBC Capital Markets has increased KeyCorp's price target to $18 from $17, maintaining an Outperform rating, reflecting confidence in the bank's financial trajectory after a solid performance in the third quarter of 2024.
The adjustment has been attributed to KeyCorp's robust core growth, with expectations for this growth to persist into 2025. KeyCorp's strategic initiatives, including the restructuring of its bond portfolio and the investment from the Bank of Nova Scotia, are anticipated to propel the bank's net interest income growth.
KeyCorp reported a 7% quarter-over-quarter increase in net interest income during its Third Quarter 2024 Earnings Call, along with strong investment banking fees. The company has received an initial $821 million of Scotiabank's projected $2.8 billion minority investment, expected to gain regulatory approval by Q1 2025. Despite a projected decline of 2% to 5% in 2024, KeyCorp's net interest income is projected to grow by 20% in 2025.
Analysts have noted KeyCorp's strong credit quality and predict the bank will outperform its previous credit cycle performance, backed by a healthy Common Equity Tier 1 (CET1) ratio of 10.8%. Despite anticipating a potential decline of 5% to 6% in loan forecasts for 2024, the company's management remains cautiously optimistic about the future.
InvestingPro Insights
Adding to DA Davidson's optimistic outlook on KeyCorp (NYSE: KEY), recent data from InvestingPro provides further context to the company's financial position. KeyCorp's market capitalization stands at $17.2 billion, reflecting its significant presence in the banking sector. The company's dividend yield of 4.73% aligns with DA Davidson's positive view on the bank's capital strength and could be attractive to income-focused investors.
InvestingPro Tips highlight that KeyCorp has maintained dividend payments for 53 consecutive years, underscoring the bank's commitment to shareholder returns even through various economic cycles. This track record supports DA Davidson's confidence in the company's financial strategy and execution.
Moreover, KeyCorp's price-to-book ratio of 1.2 suggests that the stock may be reasonably valued relative to its book value, which could be of interest to value investors considering the analyst's bullish stance on the company's future prospects.
For readers interested in a deeper analysis, InvestingPro offers additional tips and metrics that could provide further insights into KeyCorp's financial health and market position. The platform lists 8 more tips for KEY stock, which could be valuable for investors looking to make informed decisions based on comprehensive data.
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