Cleveland-based KeyCorp (NYSE:KEY) primarily offers banking services to Great Lakes states and the northeastern United States. Problem is, baby boomers and people in general are moving to warmer Sun Belt states. And while KeyCorp is still doing well, investors wonder whether growth prospects will ever gain momentum.
As one of the 15 largest banks in the country, KeyCorp holds a certain amount of appeal. It has also increased its dividend payment every year for more than four decades and now sports a yield of 3.8%. Key banking metrics are also respectable -- the net interest margin was 3.5%, and return on equity came in at 19.06% during the company's recently announced first-quarter report.
But as you might have guessed, KeyCorp has had problems growing the top line. Total revenue has grown only a couple of percentage points annually over the past five years, and the company recently sold its McDonalds Investment branches and Champion Mortgage loan origination business.
Going forward, management has committed itself to focusing on core commercial and "relationship banking" services. It has also completed about 15 divestitures and acquisitions in the past five years to add exposure to faster-growing regions and exit underperforming businesses.
It all sounds encouraging, but as it stands currently, KeyCorp remains stuck in the middle. It has a nice dividend yield and low P/E, but so do most peers. The larger players, including Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and JPMorgan Chase (NYSE:JPM), can be bought at similar levels and also carry more valuable brand names and exposure to faster-growing markets. Additionally, smaller players such as Regions Financial (NYSE:RF) and SunTrust (NYSE:STI) are already located in the appealing Sun Belt regions that KeyCorp should be focusing on.
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Fool contributor Ryan Fuhrmann is has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.
