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KeyCorp 'Strongest' in 20 Years, Says JPMorgan

Stocks in this article: KEY I:BKX

NEW YORK (TheStreet) -- KeyCorp (KEY) is ready to "stop putting out fires," which will enable CEO Beth Mooney to focus on "the key ingredient that could potentially yield more consistent returns for shareholders," says JPMorgan Chase analyst Steven Alexopoulos.

That key ingredient, according to Alexopoulos, is "organic growth."

KeyCorp last month reported that through the third quarter, it had achieved "annualized run rate savings of $207 million, focused on further efficiency improvements." That exceeded the original goal of its cost-cutting program, which was $150 million to $200 million in annualized savings.

The company also reported that its average portfolio loans grew 1% sequentially and 5% year-over-year, with commercial loan growing at a stronger pace of 2% during the third quarter and 11% year-over-year. Please see TheStreet's earnings coverage for more on the company's third-quarter results.

Following a meeting with KeyCorp CFO Donald Kimble, Alexopoulos reiterated his "overweight" rating for KeyCorp while raising his price target for the stock to $15 from $14.00.

"While we appreciate market skepticism over the turnaround potential at Key, in this report we provide a historical deep dive into the company, which suggests that the current version of KeyCorp is the strongest version in 20-plus years," Alexopoulos wrote in a note to clients.

"The horse that is likely to pull the revenue cart is loan and fee revenue growth coming out of the commercial side of Key's business with the retail side being an area to squeeze out additional cost saves," he added. A particular advantage for KeyCorp in growing commercial loans -- coveted by banks for their relatively high fees and generally short maturities -- is its positioning to "capitalize on opportunities provided by Utica Shale exploration," according to the analyst.

In addition to the energy boom, Alexopoulos sees other benefits to KeyCorp's commercial business from industrial and real estate recoveries, as well as "infrastructure improvements to Eastern Ohio."

KeyCorp's return on average tangible common equity (ROE) improved to 12.32% in the third quarter from 9.23% the previous quarter and 9.92% a year earlier, according to Thomson Reuters Bank Insight.

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