KeyCorp Analysis – August 2015 Update $KEY

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.

We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.

In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

What follows is a specific look at how KeyCorp (KEY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): KeyCorp is a bank holding company. The Bank operates through its subsidiary, KeyBank National Association, which is engaged in providing banking services. Through KeyBank and other subsidiaries, the Bank provides a range of retail and commercial banking, commercial leasing, investment management, consumer finance, commercial mortgage servicing and special servicing, and investment banking products and services. The Bank provides these services to individual, corporate and institutional clients. The Bank operates in two segments: Key Community Bank, which serves individuals and small to mid-sized businesses by offering a variety of deposit, investment, lending, credit card, and personalized wealth management products and business advisory services, and Key Corporate Bank, is a full-service corporate and investment bank focused on serving the needs of middle market clients in seven industry sectors: consumer, energy, healthcare, industrial, public sector, real estate and technology.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of KEY

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
5. Moderate PEmg Ratio PEmg < 20 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 0.99
MG Growth Estimate 15.00%
MG Value $38.04
Opinion Undervalued
MG Value based on 3% Growth $14.33
MG Value based on 0% Growth $8.40
Market Implied Growth Rate 2.73%
Current Price $13.79
% of Intrinsic Value 36.25%

KeyCorp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $0.35 in 2011 to an estimated gain of $0.99 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.73% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on KeyCorp (KEY)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

KEY Charts - August 2015

PEmg 13.96
PB Ratio 1.10
Dividend Yield 1.96%
Number of Consecutive Years of Dividend Growth 5



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Most Recent Balance Sheet Figures

Long-Term Debt $10,267,000,000
Total Assets $94,606,000,000
Intangible Assets $1,140,000,000
Total Liabilities $84,016,000,000
Shares Outstanding (Diluted Average) 846,312,000

Earnings Per Share History

Next Fiscal Year Estimate $1.06
Dec14 $0.99
Dec13 $0.97
Dec12 $0.89
Dec11 $0.87
Dec10 $0.44
Dec09 -$2.34
Dec08 -$3.36
Dec07 $2.32
Dec06 $2.57
Dec05 $2.73
Dec04 $2.30
Dec03 $2.12
Dec02 $2.27
Dec01 $0.31
Dec00 $2.30
Dec99 $2.45
Dec98 $2.23
Dec97 $2.07
Dec96 $1.69
Dec95 $1.71

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.99
Dec14 $0.91
Dec13 $0.64
Dec12 $0.08
Dec11 -$0.35
Dec10 -$0.67
Dec09 -$0.69
Dec08 $0.53
Dec07 $2.45
Dec06 $2.48
Dec05 $2.27
Dec04 $1.98
Dec03 $1.84
Dec02 $1.77
Dec01 $1.64
Dec00 $2.25
Dec99 $2.16

Recommended Reading:

Other ModernGraham posts about the company

The 12 Best Stocks For Value Investors This Week – 5/30/15
A Glimpse at the Banking Industry – May 2015
KeyCorp Quarterly Valuation – May 2015 $KEY
28 Companies in the Spotlight This Week – 2/28/15
KeyCorp Quarterly Valuation – February 2015 $KEY

Other ModernGraham posts about related companies

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BB&T Corporation Analysis – August 2015 Update $BBT
PNC Financial Services Group Inc. Analysis – August 2015 Update $PNC
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Comerica Incorporated Analysis – July 2015 Update $CMA
Starwood Property Trust Inc. Analysis – Initial Coverage $STWD
Fifth Third Bancorp Analysis – July 2015 Update $FITB
Huntington Bancshares Analysis – June 2015 Update $HBAN
JPMorgan Chase Analysis – June 2015 Update $JPM
Wells Fargo Stock Analysis – May 2015 Quarterly Update $WFC


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

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