RBC Capital Markets has adjusted its outlook on KeyCorp (NYSE: NYSE:KEY), increasing the bank's price target to $18 from $17 while maintaining an Outperform rating.
The adjustment reflects the firm's confidence in KeyCorp's financial trajectory following a solid third-quarter performance in 2024.
The analyst from RBC Capital highlighted KeyCorp's robust core growth in the third quarter of 2024, suggesting that the second quarter of the same year marked a turning point for the bank's net interest income (NII) and net interest margin. The expectation is for this growth to persist into 2025.
KeyCorp's strategic moves, including the restructuring of its bond portfolio and the investment from the Bank of Nova Scotia (BNS), are anticipated to be key factors propelling the bank's net interest income growth. These initiatives are part of the reason behind the raised price target.
The analyst also noted KeyCorp's strong credit quality, expressing a belief that the bank is poised to outperform its performance from the previous credit cycle. This assessment is backed by KeyCorp's current Common Equity Tier 1 (CET1) ratio, which stands at a healthy 10.8%.
In other recent news, KeyCorp reported a 7% quarter-over-quarter increase in net interest income and robust investment banking fees in its Third Quarter 2024 Earnings Call. The company has also received an initial $821 million from Scotiabank's projected $2.8 billion minority investment, which is expected to gain regulatory approval by Q1 2025. KeyCorp's net interest income is projected to grow by 20% in 2025, despite a projected decline of 2% to 5% in 2024.
KeyCorp also anticipates a potential decline of 5% to 6% in loan forecasts for 2024. Despite these challenges, the company's management remains cautiously optimistic, with the CEO expecting stabilization in nonperforming loans and the CFO indicating that expense growth for the next year could be in the mid-to-single digits.
InvestingPro Insights
Adding to RBC Capital Markets' optimistic outlook on KeyCorp (NYSE: KEY), recent data from InvestingPro provides further context to the bank's financial position and market performance. KeyCorp's market capitalization stands at $16.01 billion, reflecting its significant presence in the banking sector. The bank's dividend yield of 4.75% as of the latest data point aligns with RBC's expectation of enhanced shareholder value through increased capital returns.
InvestingPro Tips highlight that KeyCorp has maintained dividend payments for 53 consecutive years, underscoring its commitment to shareholder returns even through various economic cycles. This track record supports RBC's projection of higher dividends in 2025. Additionally, KeyCorp has shown a high return over the last year, with a 1-year price total return of 71.18%, indicating strong market performance that corroborates RBC's Outperform rating.
It's worth noting that KeyCorp's P/E ratio is currently at 5,851.24, which is exceptionally high. This could be due to temporary factors affecting earnings or market expectations of future growth. Investors might want to consider this alongside RBC's positive outlook.
For those seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for KeyCorp, providing deeper insights into the company's financial health and market position.
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