KeyCorp Leads Bank Stocks Higher Following Strong ADP Report

NEW YORK (TheStreet) -- KeyCorp (KEY) of Cleveland led bank stocks higher on Wednesday, with shares rising more than 2% to close at $12.83, as the continued flow of economic data underlined investors' nervousness over the eventual tapering of bond purchases by the Federal Reserve.

The broad indices ended mixed after Automated Data Processing said private employers in the United States added 215,000 jobs during November, which greatly exceeded the consensus estimate of 173,000, among economists surveyed by Thomson Reuters.

Also on Tuesday, the Department of Commerce said U.S. sales of new single-family homes during October increased 25% from a year earlier to an annual pace of 444,000, which was ahead of the consensus estimate of 425,000.

In an effort to hold long-term interest rates down, the Federal Reserve has been making monthly net monthly "QE3" purchases of long-term U.S. treasury bonds and agency mortgage-backed securities of $85 billion a month since September 2012.  This rapid expansion of the Fed's balance sheet can't go on forever, and investors have shown plenty of jitters heading into the last several meetings of the Federal Open Market Committee, which next meets on Dec. 17-18.

The KBW Banking Index (I:BKX) on Wednesday rose 0.4% to 67.13, with all but seven of the 24 index components ending with gains.  In addition to KeyCorp, large regional banks showing strength included BB&T (BBT) of Winston-Salem, N.C., with shares rising 1.6% to $34.83; U.S. Bancorp (USB) of Minneapolis, up 1.4% to $39.05; and Regions Financial (RF) of Birmingham, Ala., which rose 1.3% to close at $9.67.

KeyCorp

KeyCorp's shares have returned a whopping 55% this year.  The shares trade for 1.3 times their reported Sept. 30 tangible book value of $9.92, and for 12.6 times the consensus 2014 EPS estimate of $1.02. The consensus 2015 EPS estimate is $1.12.

JPMorgan Chase analyst Steven Alexopoulos in a client note on Nov. 15 said KeyCorp was in its strongest condition in 20 years, and was well positioned to see a significant acceleration in commercial loan growth.

KeyCorp is also among the regional banks rated "outperform," that Credit Suisse analyst Craig Siegenthaler on Tuesday said would see a significant boost in price valuations during 2014.

KEY ChartKEY data by YCharts

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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