On Monday, Stephens raised the price target for KeyCorp (NYSE:KEY) shares to $18.00, up from the previous target of $16.00, while keeping an Overweight rating on the stock. The adjustment follows the company's second-quarter earnings report, which showed earnings per share (EPS) of $0.25, aligning with the general consensus. KeyCorp's operating pre-tax, pre-provision net revenue (PPNR) of $452 million was approximately 3% above consensus estimates.
The company has revised its 2024 loan growth forecast from stable to a decrease of 4-5%. However, KeyCorp has confirmed its net interest income guidance for 2024 and unveiled potential for additional fixed-rate asset opportunities in 2025 and 2026.
The firm's analysts are evaluating whether the stock's post-earnings underperformance is due to skepticism over the second half of 2024 net interest income outlook or other concerns for 2025, such as expenses.
According to the firm's model, a pivot in net interest income is expected, with projections reaching $1.02 billion in the fourth quarter of 2024. KeyCorp's management has expressed confidence in an uptick in commercial loan growth, noting that loan pipelines have increased by 50%. The firm believes that the market might be underestimating the potential for increased fee income beyond investment banking.
KeyCorp has also reported a significant improvement in its Common Equity Tier 1 (CET1) capital ratio, which has increased by 120 basis points over the past year to 10.5%.
Additionally, the company has made progress in reducing accumulated other comprehensive income (AOCI), with a 28% burndown expected through 2025. The firm maintains its Overweight rating due to the medium-term net interest income trajectory and the current valuation of the stock.
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