KeyCorp Is Well Positioned For 2018 And Beyond

Mar. 17, 2018 3:25 PM ETKeyCorp (KEY)13 Comments
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WG Investment Research


  • KeyCorp's Q4 2017 results were nothing to brag about, but the bank has great, long-term business prospects and several catalysts in place.
  • This regional bank has a great, long-term story to tell, and the thesis is already playing out.
  • KeyCorp is a long-term buy at today's price.

KeyCorp (NYSE:KEY) rarely ever gets mentioned when analysts talk about regional banks that have promising, long-term business prospects but, in my opinion, there is a lot to like about this Cleveland, Ohio-based company.

Source: Image

Let's also not forget that KeyCorp's stock has performed well over the last year, as KEY's shares are up ~14% while the SPDR Regional Bank ETF (KRE) is up only ~13% over the same period of time.

ChartKEY data by YCharts

This regional bank has been a top performer for the R.I.P. portfolio, but I believe that the stock still has room to run. More specifically, KeyCorp has a great management team and it has the bank well-positioned for 2018 and beyond. Additionally, the bank is operating in an environment that has promising (and improving) long-term business prospects.

The Thesis

The operating environment for the U.S. banks, especially the regional banks, has greatly improved over the last two-plus years. Specifically, rising interest rates and business-friendly regulatory changes have created an environment that should lead to improving fundamentals for the regional banks for many years to come.

Interest rates have not moved as much as some pundits, including myself, were predicting a few years ago, but every little bit counts, especially when you consider the backdrop.

Source: Macrotrends, Fed Funds Rate Five-Year History

The upward movement only started in a more material way over the last 18 months, but the banks are already benefiting from the higher rates. To this point, KeyCorp recently reported a ~7% YoY increase in net interest income, excluding purchase accounting accretion ("PAA") for Q4 2017.

And more importantly, management mentioned during the Q4 2017 conference call that KeyCorp has the opportunity to greatly benefit from the additional interest rate hikes that are widely expected to occur over the next 12-18

ChartKEY PE Ratio (Forward) data by YCharts

ChartKEY Price to Book Value data by YCharts

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This article was written by

WG Investment Research profile picture
Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long KEY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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