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Ahead of the Bell: KeyCorp stock rally may fade


KeyCorp's rally may fade Friday, a day after better-than-expected third-quarter results pushed the bank's stock to near a 52-week high.

After Thursday's 4.4 percent gain, KeyCorp shares are too expensive to merit a "Buy" rating, Citi Research analysts said in a note to clients Friday. They downgraded the stock to "Neutral," but raised their price target on the shares by 50 cents to $9. KeyCorp closed Thursday at $8.78, up 14 percent this year. KeyCorp's 2012 peak of $9.12 was hit last month.

The company, based in Cleveland, said Thursday that its net income was flat at $214 million for the July-September quarter. Net interest income, a measure of the bank's ability to profit from lending, rose 4 percent to $578 million. Profit and total revenue were better than Wall Street had expected.

Traders were also impressed by KeyCorp's net interest margin, which shows how effectively a bank is profiting from its loan portfolio. It's calculated by dividing interest income by the average value of loans on its books.

The metric topped expectations in the third quarter, and it is likely to improve in the fourth quarter — a rarity as many banks are squeezed by ultra-low interest rates and competition for customers.

But that improvement may be temporary, the Citi analysts said. They said KeyCorp is benefiting from paying lower interest to depositors and creditors and refinancing its debt at lower rates. After the fourth quarter, they said, KeyCorp "will have fewer levers to pull."

KeyCorp runs KeyBank, a bank chain with branches in 14 states.

KeyCorp fell 14 cents, or 1.6 percent, to $8.64 in premarket trading Friday.


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