Is KeyCorp (KEY) Still A Bargain After Its $92.9 Million Financing?

KeyCorp has delivered a strong share price run over the past few years, which now puts a spotlight on whether the bank's current valuation is supported by the returns it earns on its capital. With the stock recently trading around US$19.79 after some shorter term softness, investors are asking if the recent gains line up with the fundamentals of how effectively the business puts capital to work.

• Over the past 3 years, KeyCorp has returned about 114.3%, which puts real weight on the question of whether those gains are backed by durable returns on the capital inside the business.
• KeyBank's recent US$92.9 million financing for a 166 unit affordable housing project in Los Angeles can shape future capital deployment, which may influence how efficiently the group converts its balance sheet into returns.
• What if you looked at KeyCorp through its earnings instead? See what KeyCorp's 11.2x P/E says about the price.

The issue now is whether the returns KeyCorp earns on its capital are strong enough and resilient enough to justify the price investors are paying for the shares today.

If you are weighing whether KeyCorp's 3 year return of 114.3% lines up with the returns it earns on capital, it can help to compare that pattern with other banks screened for our screener containing 20 high quality undiscovered gems.

Does KeyCorp Look Undervalued on Excess Returns?

The Excess Returns model looks at how much profit KeyCorp can generate above the return that shareholders require on its equity. In this framework, the key inputs are the bank's book value and its ability to earn more than that equity charge over time.

Within this approach, KeyCorp is modeled with book value of $16.14 per share and a stable book value estimate of $17.29 per share, which points to a balance sheet that is expected to keep compounding. Stable EPS is set at $2.12 per share against a cost of equity of $1.29 per share, which implies an excess return of $0.83 per share based on an average return on equity of 12.24%. The Excess Returns projections place KeyCorp's estimated intrinsic value substantially above the current share price of $19.79. Because the recent $92.9 million affordable housing financing in Los Angeles absorbs capital at the group level, that type of lending decision helps explain why the market continues to test how sustainable these modeled excess returns really are. Find out what KeyCorp could be worth using our Excess Returns estimate.

The KeyCorp Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for KeyCorp pick up where the valuation puzzle leaves off. They lay out in plain terms what kind of future path for growth, margins and earnings would need to occur for the stock to be worth materially more or less than it is today, and turn a single output from a ratio or model into a set of concrete assumptions you can watch over time to see whether that story is still on track.

One of the top community narratives on KeyCorp: 22% undervalued

"Disciplined capital management that includes plans for at least US$1.3b of common share repurchases in 2026, redemption and refinancing of more expensive preferred stock..."

Discover why this Narrative puts KeyCorp at 22% undervalued.

One unresolved angle for KeyCorp that could change the story

Balance sheet metrics only go so far if the people in charge are rewarded in ways that push them toward different priorities than you expect. That is where your next question lies. See who runs KeyCorp and how they are paid.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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