On Thursday, Citi downgraded shares of KeyCorp (NYSE: NYSE:KEY), shifting its rating from Buy to Neutral. The price target remains set at $19.00. The revision followed a notable surge in the banking sector, influenced by the market's reaction to election outcomes favoring the Republican Party.
The analyst noted that KeyCorp's stock experienced a significant uptick, closing the day with a 15.7% gain. This performance was attributed to the market's optimism regarding a favorable regulatory environment, a rebound in capital markets, and adjustments in fixed asset pricing.
The banking sector outperformed broader markets, with the Bank Index (BKX) closing up by 10.7%, compared to a 2.5% increase in the S&P 500 Index. KeyCorp was identified as a primary beneficiary in the wake of the election, with its shares trading higher than other banks in its group.
The analyst's commentary highlighted KeyCorp's trading at 9.4% on their implied cost of equity metric, which is lower than the peer median of 9.8% and the least among regional banks.
Despite KeyCorp's strong performance, the analyst suggested that the company's current valuation appears relatively full. This assessment led to the decision to downgrade the stock to a Neutral stance while maintaining the existing price target of $19.00.
The analyst's comment underscored that KeyCorp's trading level is not typical for the bank, implying that the recent price increase might reflect an already optimized valuation.
KeyCorp's position in the market has been closely monitored, especially in light of recent political developments that could impact the financial sector. The bank's share performance has been a topic of interest for investors, particularly after the election results that are anticipated to shape the economic landscape.
The downgrade to Neutral indicates a shift in expectations for KeyCorp's near-term stock performance. However, the maintained price target suggests that Citi does not foresee a significant change in the bank's market value in the immediate future. Investors and market watchers will continue to observe KeyCorp's performance as it navigates the evolving regulatory and economic environment.
In other recent news, U.S. regional banks, including KeyCorp and Fifth Third Bancorp (NASDAQ:FITB), are grappling with rising non-performing loans in their commercial real estate portfolios, particularly office loans. This development is attributed to the ongoing trend of remote work, which has reduced demand for office spaces.
KeyCorp's office non-performing loans have increased to 5.1% from 2.3% a year earlier, while Fifth Third Bancorp reported a slight uptick in office non-performing loans to 0.18% from 0.16%.
In contrast, DA Davidson and RBC (TSX:RY) Capital Markets have both raised their stock price targets for KeyCorp, citing strong growth prospects. DA Davidson increased its target to $20.00 from $19.00, maintaining a Buy rating. RBC Capital Markets also raised its price target from $17 to $18, maintaining an Outperform rating.
Both firms anticipate robust net interest income growth for KeyCorp in 2025, backed by strategic initiatives and a healthy Common Equity Tier 1 ratio of 10.8%.
On the earnings front, KeyCorp reported a 7% quarter-over-quarter increase in net interest income during its Third Quarter 2024 Earnings Call. The company also announced plans for regulatory approval of Scotiabank (TSX:BNS)'s $2.8 billion minority investment by Q1 2025.
These recent developments highlight the dynamic financial landscape faced by U.S. regional banks amid shifting work trends and evolving financial strategies.
InvestingPro Insights
Recent data from InvestingPro adds context to Citi's downgrade of KeyCorp (NYSE: KEY). The stock's significant return of 15.77% over the last week aligns with the analyst's observation of a 15.7% gain. This surge has pushed KeyCorp to trade near its 52-week high, with the price at 99.85% of its peak. The stock's momentum is further evidenced by strong returns of 19.08% over the last month and 42.56% over the last three months.
InvestingPro Tips highlight that KeyCorp has maintained dividend payments for 53 consecutive years, which may appeal to income-focused investors despite the recent price surge. However, the stock's RSI suggests it is in overbought territory, supporting Citi's view that the valuation appears full.
For investors seeking a deeper analysis, InvestingPro offers 13 additional tips for KeyCorp, providing a more comprehensive view of the company's financial health and market position.
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