KeyCorp’s Valuation Is Close to Industry Average
Higher total returns
KeyCorp’s (KEY) total shareholder returns over the last five years exceeded the S&P 500 Index and its peers. Total returns include stock price appreciation and dividends. KeyCorp’s share price increased at a CAGR (compound annual growth rate) of 22% compared to ~15% for the S&P 500 and its peer group.
Interested in FHN? Don't miss the next report.
Receive e-mail alerts for new research on FHN
The graph above shows KeyCorp’s price performance compared to the S&P 500 and its peer group over the last five years. KeyCorp forms ~3.1% of the iShares U.S. Regional Banks ETF (IAT).
Is KeyCorp overvalued?
KeyCorp’s price-to-book ratio is 1.2. Its price-to-book ratio is lower than peers Wells Fargo (WFC), U.S. Bancorp (USB), and First Horizon National (FHN). It is also lower than the industry average represented by the SPDR S&P Bank ETF (KBE) and the SPDR S&P Regional Banking ETF (KRE).
KeyCorp’s return on equity (or ROE) is ~9%. KeyCorp’s ROE also is lower than the industry average as represented by KBE. However, KRE, which specifically focuses on regional banks like KeyCorp, has an ROE of ~9%, which is equal to KeyCorp’s.
The graph above compares KeyCorp’s price-to-book ratio, relative to ROE, with its peers. Since its price-to-book ratio is higher than that implied by its ROE, KeyCorp’s valuation looks slightly overvalued compared to KBE. However, it’s undervalued compared to KRE, the regional banking ETF, as shown in the graph.
KeyCorp is focused on loan and deposit growth through acquiring and expanding client relationships. It further targets a loan-to-deposit ratio of 90%–100%. The ratio was 85% for the previous quarter. Higher loans will also help improve the company’s net interest margin toward its long-term target of greater than 3.5%.
Another area of focus is efficiency in operations with a long-term target efficiency ratio of less than 60%. Any improvements on these fronts should definitely reflect in KeyCorp’s stock price.