Yahoo Finance KeyCorp (KEY) Hurt by Rising Expenses & Loan Concentration
KeyCorp KEY is expected to witness a persistent rise in operating expenses. This, along with a concentrated loan portfolio, is a major concern. However, higher interest rates, decent loan demand and focus on fee income are expected to keep supporting revenues to some extent.
The company has been witnessing a continuous rise in non-interest expenses over the past several years. Though it declined in 2018 and 2019, the metric has witnessed a compound annual growth rate (CAGR) of 1.5% over the last six years (2016-2022). The rise was mainly due to an increase in personal costs.
Expenses are expected to remain high in the near term as the company continues to expand through technological upgrades, investments in franchises, inflationary pressure and an inorganic growth strategy. Our estimate for total non-interest expenses suggests a CAGR of 1.3% by 2025.
The company's major part of the loan exposure comprises residential prime and commercial real estate loans. As of Mar 31, 2023, more than 40% of its loan portfolio has been exposed to these sectors. The housing sectors have performed reasonably well over the past few years. However, any deterioration in real estate prices could pose a threat to the company's financials.
Analysts also seem pessimistic regarding KEY’s earnings growth prospects. The Zacks Consensus Estimate for 2023 and 2024 earnings has been revised 1.9% and 2.2% lower, respectively, over the past seven days. Further, KEY currently carries a Zacks Rank #4 (Sell).
Over the past six months, shares of KEY have plunged 50.9% compared with the industry's decline of 16.2%.
Image Source: Zacks Investment Research
Despite the above-mentioned headwinds, KeyCorp is well placed to grow organically, driven by strategic acquisitions, a decent rise in loan demand, efforts to bolster fee income sources and higher rates. Though we project total revenues to decline 2.9% this year, it is likely to rebound and grow 2% and 2.7% in 2024 and 2025, respectively. Further, given a solid balance sheet position, the company remains well-positioned to expand through opportunistic buyouts.
Stocks Worth Considering
A couple of better-ranked finance stocks are JPMorgan Chase & Co. JPM and The Bancorp TBBK.
JPMorgan currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for JPM has been revised upward by 11.8% for 2023 over the past 30 days. JPM’s share price has increased 1.9% over the past six months.
Earnings estimates for The Bancorp have been revised upward by 6.5% for the current year over the past 30 days. In a year, TBBK’s shares have rallied 57.3%. Currently, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
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The Bancorp, Inc. (TBBK) : Free Stock Analysis Report
