What happened
KeyCorp (KEY 0.96%) bounced back strong last month as its stock price climbed 33% in July, according to S&P Global Market Intelligence. KeyCorp, the holding company for Key Bank, is down about 31% year to date as of Aug. 7, trading at about $12 per share.
The bank stock topped the S&P 500, which was up 3.2% in July. It also beat the Dow Jones Industrial Average (+3.4%), and the Nasdaq Composite (+4.1%) last month.
So what
It was a pretty good month for bank stocks overall, as the KBW Nasdaq Bank Index, which tracks the 24 largest U.S. banks, was up about 11% in July. KeyCorp is the 21st largest bank with about $195 billion in assets. Inflation dropping to 3.1% in June and the gross domestic product rising 2.4% in the second quarter provided a favorable environment for banks, which thrive in a growing economy. Also, banks like KeyCorp got a boost from the strong earnings reports by some of the megabanks earlier in July.
As for KeyCorp, it has underperformed the index all year, as its stock price is off some 31% year to date (YTD) as of Aug 7, while the KBW Bank Index is down about 13.4% YTD.
NYSE: KEY
Key Data Points
It did not have a great Q2, missing both consensus earnings and revenue estimates. Net income was down 50% year over year to $250 million and 9% from Q1. Revenue was down 11% year over year to $1.6 billion and 7% from Q1. Loans were up 11% to $121 billion, but high deposit costs took a bite out of earnings. The bank had $1 billion in interest expense in Q2, up from $750 million in Q1 and just $96 million a year ago this quarter. Net-interest income, after provision for credit losses, was $811 million, down from $960 million in Q1 and $1.05 billion a year ago.
As a result, the net-interest margin fell 25 basis points to 2.12% compared to Q1.
Now what
KeyCorp benefited greatly from a rising tide for banks as well as a wave of investors looking to buy a beaten-down, dirt-cheap stock, which had dropped to under $9 per share in May.
KeyCorp's liquidity is solid, but its deposits did not bounce back as much as some of its competitors' -- down 0.4% in the quarter to $142.9 billion, compared to $143.4 billion in Q1. It is cheap with a high 6.4% dividend yield, but its payout ratio is high at over 50%.
I probably wouldn't sell it if i owned it, mainly because of the dividend, but there are better bank stocks out there right now to consider as buys.
