Compass Point Reiterates Buy on KeyCorp (KEY) Following 4Q Results and Merger Update

Compass Point reiterated a Buy rating and $16.00 price target on KeyCorp (NYSE: KEY) following the company's 4Q earnings report. KEY reported operating EPS of $0.28/sh, which matched estimates. However, the focus was clearly on the progress and ultimate impact of the FNFG merger. KEY provided an update on the merger, noting that integration teams from both banks had been established and were working through projections for cost saves. Initial reports suggest that the cost saves will be in excess of $400M, and more importantly that the timetable for realizing the cost saves would most likely be quicker than originally estimated.

Analyst Jesus Bueno commented, "We reiterate our Buy rating and maintain our $16 target price following the 4Q15 earnings release. KEY reported operating EPS of $0.28/sh, which matched estimates, however the focus was clearly on the progress and ultimate impact of the FNFG merger. Management confirmed our belief that initial targets for cost saves and EPS accretion were conservative, and it now appears that a bulk of the costs saves could be realized sooner than initially expected. Although the initial reaction to the acquisition was viewed negatively given the outlined TBV dilution, we expect that investors will begin to give KEY more credit for opportunistically deploying capital and expanding its nearly $100B in assets by more than 40%. We also anticipate that KEY shares will re-rate as a result of their more efficient proforma capital structure and higher ROTCE, which should command a higher P/TBV multiple. We project that KEY will resume its buyback program in 4Q16 which should help support EPS, while the bank is also pursuing noninterest revenue initiatives, some of which are scalable and could be applied to the newly acquired FNFG. We maintain our FY16E EPS of $1.20 and our FY17E EPS estimate of $1.52. Our estimate for 5% earnings accretion in 2017 remains unchanged as we had modeled more aggressive cost saves than outlined initially by KEY given our belief that their estimates were too conservative."

For an analyst ratings summary and ratings history on KeyCorp click here. For more ratings news on KeyCorp click here.

Shares of KeyCorp closed at $11.17 yesterday.

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