Down more than 10% in 2022, is now a good time to buy shares of KeyCorp?

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Key Corp (KEY) provides deposit, lending, cash management and investment services to consumers and businesses in 15 states through a network of more than 1,000 locations and approximately 1,300 ATMs under the National KeyBank Association. Key, based in Cleveland, Ohio, also offers sophisticated corporate and investment banking products to middle-market companies, including advice on mergers and acquisitions, public and private equity and debt, syndications and derivatives.

While the stock price has gained 4.9% over the past year, it has fallen 16.3% over the past three months and 10.5% over the past month.

Rising mortgage rates and inflation dampened mortgage origination and refinancing activity in the quarter, which hurt KEY’s mortgage banking division. In addition, rising prices and uncertainties related to economic growth, mainly due to lingering geopolitical concerns, could impact consumer confidence.

Here’s what could shape KEY’s performance in the short term:

Market Headwinds

Unlike previous quarters, trading in KEY stalled in March as the Russian-Ukrainian war and runaway inflation rates impacted global corporate activity. Similarly, when stock market performance crashed, subsequent IPOs and equity issuances dried up. As a result, the performance of KeyCorp’s investment banking (IB) business over the next quarter is expected to be subdued.

Mixed profitability

KEY’s trailing 12-month CAPEX-to-Sales multiple of 0.86% is 44.8% below the industry average of 1.6%. However, its 34.2% over 12 months net profit margin is 11.7% higher than the industry average of 30.6%. Additionally, its $1.15 billion in trailing 12-month operating cash is 663.6% higher than the industry average of $151 million.

Mixed growth prospects

Analysts expect KEY’s revenue to grow 0.4% in the current year and 5.1% next year. However, KEY’s EPS is expected to decline 19.7% in the current quarter (ending March 31, 2022) and 16% in the current year. In addition, its EPS is expected to decline at the rate of 1.6% per year over the next five years.

POWR ratings reflect uncertainty

KEY has an overall rating of C, which equates to Neutral in our own POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight distinct categories. KEY has a C rating for quality and feeling. The company’s mixed profitability is in line with the Quality rating. Additionally, analysts’ revenue and EPS estimates are in sync with the Sentiment rating.

Among the 10 D-rated stocks Monetary center banks industry, KEY is ranked #1.

Beyond what I said above, we can see the KEY ratings for value, growth, momentum and stability here.

Conclusion

Although KEY is optimistic about its outlook for the coming quarters, rising economic risks including inflation, a possible recession and ongoing geopolitical tensions could impact investor sentiment. Moreover, it is currently trading below its 50-day and 200-day moving averages of $23.59 and $22.65, respectively, indicating a downtrend. We therefore believe that investors should wait for the company’s outlook to stabilize before investing in the stock.


KEY shares were up $0.07 (+0.33%) in premarket trading on Wednesday. Year-to-date, KEY is down -6.33%, compared to a -5.64% rise in the benchmark S&P 500 over the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college, she majored in finance and is currently pursuing the CFA program and is a Level II candidate. After…

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