Friday, April 15, 2011

KeyCorp (NYSE: KEY): Q1 Earnings Preview 2011

KeyCorp (NYSE: KEY) is scheduled to release its first-quarter earnings before the opening bell on Monday, April 18, 2011. Analysts, on average, expect the company to report earnings of 14 cents per share on revenue of $1.08 billion. In the year ago period, the company posted a loss of 11 cents per share on revenue of $1.08 billion.

KeyCorp operates as a holding company for KeyBank National Association that provides various banking services in the United States. The company operates in Community Banking and National Banking divisions. Its Tier 1 common equity ratio at December 31 was 9.31% and its Tier 1 risk-based capital ratio was 15.1%.

In the preceding fourth quarter, the Cleveland, Ohio-based company's net income was $279 million, or 32 cents a share, compared to a loss of $65 million, or 52 cents a share, in the year-ago quarter. Revenue increased to $1.16 billion from $1.11 billion a year ago. Analysts, on average, expected the company to report earnings of 13 cents per share on revenue of $1.11 billion.

Last month, the company announced that it had redeemed $2.5 billion in preferred shares held by the U.S. Treasury Department for bailout funds received through the Troubled Assets Relief Program, or TARP.The TARP repayment followed the recent completion of a $625 million common stock offering and a $1 billion debt offering. Also, KeyCorp’s plan to hike its quarterly dividend to 3 cents per share from the present 1 cent starting the second quarter of 2011 has received a green light from the Fed.

The company has benefited from the continued improvement in credit quality across the majority of loan portfolios in both Community Banking and National Banking. KeyCorp has also experienced good growth in Private Banking and Key Investment Services, its branch-based investment group.  At its last earnings call in January, the company said that it expects further improvement in the level of our net charge-offs and nonperforming loans during 2011.

KeyCorp continues to reorganize its operations in order to improve its business mix by exiting risky and unprofitable businesses. The company continued to take decisive steps to exit low-return, indirect businesses to focus on its relationship strategy and use its capital and resources where it has cross-selling opportunities within its franchise. 

Over the last two years, Key has opened 77 new branches and renovated approximately 145 others, expanding Key's 14-state branch network to 1,033 branches. The company plans to build an additional 40 new branches in 2011. 

Some regulatory uncertainty could affect money center banks later in the year though. The Dodd-Frank reform still has yet to be employed stipulations. Later in 2011, regulators will determine what the minimum capital requirements will be for major banking institutions. The regulatory changes will be based partially on the results of stress tests banks have undergone since the passage of financial reform. 

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 10.81 and PEG ratio of 2.61. In terms of stock performance, KeyCorp shares have gained nearly 2 percent over the past year.

Full Disclosure: None.
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