Last Update03 Oct 25Fair value Increased 2.15%
KeyCorp's fair value estimate has increased modestly from $21.17 to $21.62 per share. Analysts cite improved net interest margin prospects, steady fee income growth, and a more constructive outlook for regional banks as supporting factors for a higher price target.
Analyst Commentary
Recent commentary from the Street reflects a generally constructive view on KeyCorp's valuation and long-term prospects, though not without some continued caution regarding industry fundamentals and execution risks.
Bullish Takeaways- Several bullish analysts have increased their price targets for KeyCorp, citing expectations for improved net interest margin expansion and robust net interest income growth that exceed the company's own guidance.
- Upgrades in earnings estimates for 2025 and 2026 signal confidence in KeyCorp's ability to deliver higher earnings per share, supported by steady fee income and better-than-expected performance in investment banking fees.
- Strategic advantages such as scale and strong capital positioning are seen as key drivers for outsized returns. Some believe KeyCorp is well positioned to benefit from a broader recovery in regional banks and potential regulatory relief.
- Momentum in loan growth and diversification in revenue streams are drawing attention, supporting future earnings upgrades and opportunities for multiple expansion.
- Despite higher price targets, some bearish analysts maintain a cautious outlook and emphasize that KeyCorp’s valuation already reflects much of the optimism about its fundamentals, limiting near-term upside.
- There are concerns that, while net interest income and fee growth remain constructive, expense growth could trend at the higher end of guidance and potentially pressure margins if revenue tailwinds fade.
- Analysts also point to persistent moderate fundamentals for large-cap banks. This suggests the stock could remain range-bound in the near term if macro conditions or capital requirements fail to improve further.
What's in the News
- KeyBank and the Pro Football Hall of Fame have signed a naming rights agreement for a new event center, the KeyBank Center. The venue will serve as the largest event space in the area and is set to open in 2027. The agreement includes a five-year sponsorship and added financial literacy programming. (Client Announcements)
- KeyCorp reported net loan charge-offs totaling $102 million, or 0.39% of average total loans, for the second quarter of 2025. This compares to $91 million (0.34%) for Q2 2024 and $110 million (0.43%) for Q1 2025. (Impairments/Write Offs)
- KeyBank launched KeyTotal AR™, a platform powered by machine learning that automates accounts receivable operations. The platform is designed to help middle-market businesses modernize invoicing, collections, and cash application. (Product-Related Announcements)
- No shares were repurchased by the company from April 1 to June 30, 2025, under its announced buyback program. (Buyback Tranche Update)
Valuation Changes
- Fair Value Estimate: Increased slightly from $21.17 to $21.62 per share. This reflects an improved outlook.
- Discount Rate: Edged up from 7.20% to 7.30%. This indicates slightly higher perceived risk or return expectations.
- Revenue Growth: Ticked up marginally from 19.41% to 19.50%. This signals slightly higher growth projections.
- Net Profit Margin: Decreased fractionally from 38.58% to 38.54%. This represents a minor shift reflecting updated profitability assumptions.
- Future P/E Ratio: Rose modestly from 11.24x to 11.50x. This suggests a higher valuation multiple based on forward earnings estimates.
Key Takeaways
- Shift from net interest income headwinds to tailwinds and strategic deposit cost management expected to enhance revenue growth and profitability.
- Expansion in wealth management and commercial payments, alongside strong growth in commercial loan servicing, poised to drive noninterest income and earnings stability.
- Deteriorating asset quality, regulatory pressures, and challenges in loan demand and investment banking sectors indicate potential profitability and growth issues for KeyCorp.
Catalysts
About KeyCorp- Operates as the holding company for KeyBank National Association that provides various retail and commercial banking products and services in the United States.
- The anticipated shift from net interest income (NII) headwinds to tailwinds due to a pivot in fixed asset repricing and the structure of swap and treasury maturities, expected to significantly enhance NII in the forthcoming quarters, impacting revenue growth positively.
- Improved deposit costs dynamics, with a more stable increase in deposit costs and a strategic focus on high-value consumer and commercial deposits, aiming to fortify net interest margins and overall profitability.
- Expansion in the wealth management and commercial payments sectors, marked by record production volumes and significant client growth, poised to drive noninterest income upwards, influencing both revenue and net margins positively.
- Strong growth in the national third-party commercial loan servicing business, providing a counter-cyclical revenue stream and insights into the commercial real estate market, which could bolster diversified revenue streams and enhance earnings stability.
- Persistent discipline in pricing and cost control amidst the evolving economic and interest rate landscape to maintain and potentially improve net margins, thereby supporting earnings growth even in a tepid loan demand environment.
Assumptions
How have these above catalysts been quantified?- Analysts are assuming KeyCorp's revenue will grow by 10.5% annually over the next 3 years.
- Analysts assume that profit margins will increase from 12.5% today to 31.0% in 3 years time.
- Analysts expect earnings to reach $2.4 billion (and earnings per share of $1.74) by about October 2027, up from $716.0 million today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.0x on those 2027 earnings, down from 22.7x today. This future PE is greater than the current PE for the US Banks industry at 11.9x.
- Analysts expect the number of shares outstanding to grow by 14.11% per year for the next 3 years.
- To value all of this in today's dollars, we will use a discount rate of 6.99%, as per the Simply Wall St company report.
Risks
What could happen that would invalidate this narrative?- The decline in earnings per share from the previous year and an increase in nonperforming loans could indicate potential issues with asset quality and profitability.
- Lower than expected loan demand and competitive pricing environment could lead to lower interest income and pressure on net interest margins.
- The preliminary stress capital buffer increase suggested by the Fed's stress test results could imply higher capital requirements, potentially impacting the company's ability to distribute capital to shareholders or invest in growth opportunities.
- Tepid loan demand and the impact of higher funding costs could pressure net interest income, despite growth in deposits and controlled expenses.
- Risks associated with investment banking and commercial real estate markets could affect noninterest income and loan quality, impacting earnings and capital ratios.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $19.86 for KeyCorp based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $43.0, and the most bearish reporting a price target of just $16.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $7.7 billion, earnings will come to $2.4 billion, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 7.0%.
- Given the current share price of $17.49, the analyst's price target of $19.86 is 12.0% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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