We've been asking ourselves recently if the market has placed a fair valuation on Key. Let's dive into some of the fundamental values of this large-cap Finance company to determine if there might be an opportunity here for value-minded investors.
The Market May Be Undervaluing Key's Assets and Equity:
KeyCorp operates as the holding company for KeyBank National Association that provides various retail and commercial banking products and services in the United States. The company belongs to the Finance sector, which has an average price to earnings (P/E) ratio of 14.34 and an average price to book (P/B) ratio of 1.57. In contrast, Key has a trailing 12 month P/E ratio of 7.6 and a P/B ratio of 0.94.
When we divide Key's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -1.75. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
The Business Runs With Low Debt Levels:
| 2018-02-26 | 2019-02-25 | 2020-02-26 | 2021-02-22 | 2022-02-22 | 2023-02-22 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $6,255 | $6,424 | $6,368 | $6,686 | $7,265 | $7,245 |
| Operating Margins | 31% | 34% | 32% | 23% | 45% | 32% |
| Net Margins | 21% | 28% | 27% | 20% | 36% | 26% |
| Net Income (MM) | $1,296 | $1,866 | $1,717 | $1,343 | $2,625 | $1,917 |
| Earnings Per Share | $1.13 | $1.71 | $1.62 | $1.38 | $2.81 | $2.06 |
| EPS Growth | n/a | 51.33% | -5.26% | -14.81% | 103.62% | -26.69% |
| Diluted Shares (MM) | 1,089 | 1,055 | 1,002 | 975 | 935 | 932 |
| Free Cash Flow (MM) | $1,927 | $2,399 | $2,973 | $1,736 | $1,215 | $4,561 |
| Capital Expenditures (MM) | -$112 | $107 | -$67 | -$63 | -$62 | -$92 |
| Long Term Debt (MM) | $14,333 | $13,732 | $12,448 | $14,468 | $12,630 | $24,693 |
Key has weak revenue growth and a flat capital expenditure trend, average net margins with a stable trend, and irregular cash flows. We also note that the company benefits from low debt levels and positive EPS growth. Furthermore, Key's financial statements do not display any obvious red flags.
