Shares of KeyCorp (KEY) of Cleveland closed at $6.05 Monday, down 31% year-to-date. The shares trade for 0.7 times their tangible book value of $8.90, according to SNL Financial.
Based on a quarterly payout of three cents, the shares have a dividend yield of 1.98%.KeyCorp reported second-quarter net income attributable to common shareholders of $234 million, or 25 cents a share, increasing from $29 million, or three cents a share, in the second quarter of 2010. During the second quarter, the company transferred $8 million from loan loss reserves A year earlier, KeyCorp recorded a provision for loan losses of $228 million. A $142 million decline in loan loss reserves during the second quarter directly boosted KeyCorp's earnings performance. The second-quarter net charge-off ratio was 1.11% and reserves covered 2.57% of total loans as of June 30, suggesting that the reserve releases will continue. The second-quarter net interest margin was a tax-adjusted 3.19%, compared to 3.17% a year earlier. KeyCorp's second-quarter ROA of 1.15% was the highest among the 10 bank holding companies listed here. Guggenheim Securities analyst Jeff Davis on August 3 reiterated his "buy" rating for KeyCorp, after the company redeemed $322 million in trust preferred securities, saying the company was "over-capitalized given a tier one common-only ratio of 11.0% and total risk-based capital ratio of 17.7% at June 30." On August 15, Davis lowered his price target for KeyCorp to $9.50 from $11, "to reflect the lower valuation environment." The lower target implies 57% upside for the shares. The shares trade for eight times the consensus 2012 earnings estimate of 78 cents a share, among analysts polled by FactSet. Out of 22 analysts covering KeyCorp, four rate the shares a buy, 16 have neutral ratings and two analysts recommend investors sell the shares. Despite the lack of analyst love and the sluggish economy, the profitable KeyCorp's valuation of only 0.7 times the company's liquidation value seems ridiculous.
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