Company ProfileÂ (excerpt from Reuters): KeyCorp, incorporated on December 31, 1958, is a bank holding company. The Company is a bank-based financial services company. The Company operates through its subsidiary, KeyBank National Association (KeyBank), which is engaged in providing banking services. Through KeyBank and other subsidiaries, the Company 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 to individual, corporate and institutional clients. The Company’s segments include Key Community Bank and Key Corporate Bank. Its Other Segments consist of corporate treasury, principal investing unit and various exit portfolios.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass all 6 of the following tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$16,511,098,839||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||-455.34%||Fail|
|5. Moderate PEmg Ratio||PEmg < 20||12.83||Pass|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.10||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
|MG Growth Estimate||5.46%|
|MG Value based on 3% Growth||$18.04|
|MG Value based on 0% Growth||$10.57|
|Market Implied Growth Rate||2.16%|
|% of Intrinsic Value||66.06%|
KeyCorp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.91 in 2014 to an estimated $1.24 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.16% 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.
At the time of valuation, further research into KeyCorp revealed the company was trading below its Graham Number of $22.58. The company pays a dividend of $0.38 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.83, which was below the industry average of 14.65, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
KeyCorp fares extremely well in the ModernGraham grading system, scoring an A-.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||7|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2018|
|Long-Term Debt & Capital Lease Obligation||$13,849,000,000|
|Shares Outstanding (Diluted Average)||1,049,976,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$1.73|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.24|
Other ModernGraham posts about the company
|KeyCorp Valuation â€“ March 2018 $KEY|
|9 Best Stocks For Value Investors This Week â€“ 6/24/16|
|KeyCorp Valuation â€“ June 2016 $KEY|
|Best Stocks to Invest In: the Bank Industry â€“ August 2016|
|Stocks Trading Below Their Graham Number â€“ July 2016|
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.