KeyCorp Earnings: 2024 Net Interest Income Growth Important to Our Thesis

Key Morningstar Metrics for KeyCorp

• Fair Value Estimate: $20.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of KeyCorp’s Earnings

KeyCorp KEY reported results that largely met our expectations. Earnings per share of $0.29 came in ahead of FactSet consensus of $0.27 and our own estimate of $0.24, largely driven by lower-than-expected provisioning and a bounceback in capital markets fees. Net interest income, or NII, and expenses were largely as expected.

The bank maintained its full-year outlook, and we expect it to meet this guidance, although we see expenses trending toward the high end of “stable,” up roughly 1% for 2023. However, the bank’s goal of keeping expenses stable in 2024 is roughly what we already had in our forecasts, so we did not see any true surprises or negative developments here.

The big story with KeyCorp continues to be the pressure on profitability, driven by the pressure on NII. The bank reaffirmed once again the opportunity for NII coming from maturing swaps and Treasuries throughout 2024. We think this will be the most important metric for KeyCorp for the next several quarters. We still think NII has essentially bottomed at current levels, and we should see growth throughout 2024. This should help relieve some pressure on the dividend payout ratio—currently in the 70s—and remove some of the uncertainty around KeyCorp’s core profitability in the current rate environment. Any continued bounceback in capital markets revenue would be a bonus.

We did not see any surprises in these results and do not expect a material change to our $20 fair value estimate. KeyCorp is one of the regional banks currently facing more pressure on earnings, but we think the boost to NII throughout 2024 should help reverse that, and we believe the shares remain materially undervalued.