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8 Post-Downgrade Bank Stock Bargains

3. KeyCorp
Shares of KeyCorp (KEY - Get Report) of Cleveland closed at $7.62 Friday, for a flat year year-to-date return, following a 12% decline during 2011.

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Based on a five-cent quarterly payout, the shares have a dividend yield of 2.63%.

The shares trade for 0.8 times their reported March 31 tangible book value of $9.28, and for nine times the consensus 2013 earnings estimate of 81 cents. The consensus 2012 EPS estimate is 77 cents.

Deutsche Bank analyst Matt O'Connor on June 12 reiterated his "Buy" rating for KeyCorp, with a $9.00 price target, after meeting with CEO Beth Mooney and CFO Jeff Weeden, saying the shares had lagged "over concerns that earnings power will be sluggish and capital deployment [through further dividend increases and/or share buybacks] will take a while to play out."

KeyCorp's management expects the company's second-quarter net interest margin to be "relatively flat" from 3.16% in the first quarter, according to O'Connor, who said the company's management of its margin has been "underappreciated," as the bank "hasn't purchased bonds at premiums," so "there's less risk vs. some peers of hits related to accelerated premium amortization," and management "remains disciplined in commercial loan pricing, seeming less willing than some to cut rates for growth."

O'Connor also believes "an expense reduction initiative aimed to cut costs by $125-200m (or 5% plus) over the next 2 years is possible, boosting EPS by $0.10 or 10-15%."

The analyst estimates that KeyCorp will earn 75 cents a share this year, followed by 78 cents in 2013.

Interested in more on KeyCorp? See TheStreet Ratings' report card for this stock.
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BAC $14.05 -0.57%
C $44.22 -0.99%
KEY $11.86 -0.21%
MS $26.18 -0.40%
STI $40.35 -0.71%


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