Morgan Stanley has become more bearish while Wedbush added KeyCorp to the firm's Best Ideas List
Citing credit quality concerns, Morgan Stanley analyst Ken Zerbe downgraded KeyCorp (KEY) to Equal Weight. Zerbe now believes credit quality across the banking industry could be under significantly more pressure than he had previously thought, and sees KeyCorp standing out "relatively poor" in terms of quality metrics and lower loss-absorbing capital. Bullish on the stock, Wedbush analyst Peter Winter added KeyCorp to his firm's Best Ideas List as he believes the company is better positioned than most of its peers to handle this "unprecedented" low rate environment.
ADDED TO BEST IDEAS LIST: Wedbush analyst Peter Winter added KeyCorp to his firm's Best Ideas List as he believes it is better positioned than most of its peers to handle this “unprecedented” low rate environment due to its hedging strategy, and given its “tremendous” amount of work to de-risk the loan portfolio. The analyst also noted that a shift is underway in loan growth as consumer loan growth is starting to pick up with a focus on high FICO scores, and in his burn down scenario the stock's valuation remains attractive on a P/TBV basis. Winter pointed out that C&I lending is a core strength at KeyCorp and the primary source of growth the last several years. However, consumer loan growth is starting to pick-up, led by resi mortgage, Laurel Road, and indirect auto, which is perfect timing as he expects commercial loan growth to slow for the banking industry in the second half of 2020. The analyst has an Outperform rating and $13 price target on the shares.
CREDIT QUALITY CONCERNS: Meanwhile, Morgan Stanley analyst Ken Zerbe downgraded KeyCorp to Equal Weight from Overweight and lowered his price target on the shares to $13 from $19. The analyst now believes that credit quality across the banking industry could be under significantly more pressure than he had previously thought. In that context, Zerbe pointed out that KeyCorp "stands out relatively poorly" in terms of quality metrics and lower loss-absorbing capital. Key's credit metrics could deteriorate faster than other banks' as the economy move through a recession, Zerbe contended.
WHAT'S NOTABLE: Late last month, DA Davidson analyst David Konrad assumed coverage of KeyCorp with a Neutral rating, down from Buy, and a price target of $10, down from $21. The analyst noted that while shares are trading at a 13% discount relative to peers on expected 2020 earnings, limited near-term catalysts will make it difficult for the company to narrow that discount. Konrad added that the lag in profitability amid KeyCorp's western community banks may weigh on its multiple given the uncertainty around its next actions and the potential deal risk.
PRICE ACTION: In morning trading, shares of KeyCorp have gained almost 8% to $10.68.
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