KeyCorp Receives Buy Rating from Bank of America Securities Amid Strategic Investments and Attractive Valuation

KeyCorp is expected to benefit from increased domestic capital expenditures and capital markets recovery, supporting growth. The bank's stock is attractively valued, with a competitive forward P/E ratio and a high dividend yield. A recent investment from Scotiabank has boosted KeyCorp's CET1 capital ratio and may develop into a strategic partnership. Analyst Ebrahim Poonawala initiated a Buy rating with a notable upside potential.

KeyCorp (KEY), a leading U.S.-based financial services company, is expected to benefit from increased domestic capital expenditures and a recovering capital markets environment. This optimistic outlook is further bolstered by a recent strategic investment from Scotiabank [1]. The investment, which grants Scotiabank an approximate 14.9% ownership stake in KeyCorp, is expected to be accretive to earnings per share and create future growth opportunities.

The investment, announced on August 12, 2024, comes at a time when the U.S. economy is showing signs of recovery. With a well-established presence in the U.S. market through its Global Banking and Markets (GBM) business, Scotiabank aims to capitalize on the improving economic conditions. KeyCorp, which operates across 15 states with $187 billion in assets and approximately 1,000 branches, offers a complementary and attractive U.S. business focused on commercial clients [1].

The strategic investment from Scotiabank is expected to provide KeyCorp with a significant capital boost. The investment will be made in two stages, with an initial investment of 4.9% expected to close in the fourth quarter of fiscal 2024, and an additional investment of approximately 10% expected to close in fiscal 2025 [1]. This injection of capital is expected to support KeyCorp's growth initiatives and enhance its financial position.

Moreover, the investment from Scotibank may lead to strategic partnership opportunities between the two financial institutions. Upon completion of the additional investment, Scotiabank will have the right to designate two individuals to serve on KeyCorp's Board of Directors, one senior officer of Scotiabank and one third-party director designated by Scotiabank and reasonably acceptable to KeyCorp [1]. This closer alignment between the two companies could lead to collaborative initiatives and cross-selling opportunities.

KeyCorp's stock is attractively valued, with a competitive forward P/E ratio of 11.5 and a high dividend yield of 4.3% [2]. This undervaluation, combined with the expected growth prospects and strategic partnership opportunities, make KeyCorp an attractive investment opportunity for both Scotiabank and individual investors.

References:
[1] Scotiabank. (2024, August 12). Scotiabank announces agreement to acquire 14.9% equity interest in KeyCorp. Retrieved from https://scotiabank.investorroom.com/2024-08-12-Scotiabank-announces-agreement-to-acquire-14-9-equity-interest-in-KeyCorp
[2] Yahoo Finance. (2024, August 15). KeyCorp Inc. (KEY) Stock Price, News, Quotes & Financial Overview. Retrieved from https://finance.yahoo.com/quote/KEY