• If you are wondering whether KeyCorp at around US$19.28 is offering fair value or a potential opportunity, you need to look beyond the headline share price and consider how it compares on key valuation checks.
• The stock has had mixed returns recently, with a 0.3% move over the last week, an 11.1% decline over the last month and an 8.1% decline year to date, set against a 25.3% gain over the past year and a 101.8% gain over three years.
• These swings sit against a backdrop of ongoing interest in US regional banks. Investors continue to weigh capital strength, loan quality and interest rate sensitivity when they look at names like KeyCorp. Sector wide debates about regulation, funding costs and deposit trends have kept sentiment shifting between caution and optimism.
• KeyCorp currently has a valuation score of 4 out of 6. This sets up a closer look at how different valuation methods assess the stock today and how a more holistic approach at the end of this article may help you judge whether that score really fits the story.

Approach 1: KeyCorp Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to generate above the return investors require on its equity, then uses that stream of “excess” earnings to estimate what the shares might be worth today.

For KeyCorp, the model starts with a Book Value of $16.22 per share and a Stable EPS of $1.95 per share, based on weighted future Return on Equity estimates from 12 analysts. The Cost of Equity is set at $1.23 per share, which implies an Excess Return of $0.73 per share. In other words, the bank is expected to earn more on its equity than the return investors are assumed to require.

The Average Return on Equity used in the model is 11.32%, with a Stable Book Value estimate of $17.27 per share, also drawn from analyst projections. Feeding these inputs into the Excess Returns framework produces an estimated intrinsic value of about $37.01 per share.

Compared with the recent share price around $19.28, this model implies the stock is 47.9% undervalued on this measure.

Result: UNDERVALUED

Our Excess Returns analysis suggests KeyCorp is undervalued by 47.9%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

Approach 2: KeyCorp Price vs Earnings

For profitable companies, the P/E ratio is a useful shorthand for how much you are paying for each dollar of current earnings. It helps you quickly compare what the market is willing to pay for different banks with similar business models and earnings profiles.

What counts as a “normal” P/E depends on how the market views a company’s growth prospects and risk. Higher expected growth or lower perceived risk can support a higher P/E, while lower growth or higher risk tends to be associated with a lower P/E.

KeyCorp currently trades on a P/E of 12.47x. That sits above the Banks industry average of about 11.11x and below the peer average of 13.94x. Simply Wall St also calculates a Fair Ratio of 14.18x for KeyCorp. This Fair Ratio is a proprietary estimate of what the P/E might be, given factors such as the company’s earnings profile, industry, profit margins, market cap and risk characteristics, rather than just a simple comparison with peers.

Because the Fair Ratio of 14.18x is higher than the current 12.47x P/E, this points to the shares trading below that model based assessment.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your KeyCorp Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Meet Narratives, which let you turn your view of KeyCorp into a clear story that links what you think will happen to its revenue, earnings and margins into a financial forecast, and then into a fair value that you can compare with the current price on Simply Wall St’s Community page, where millions of investors share views. For KeyCorp, you might see one Narrative built around a higher Fair Value such as US$43.00 that leans on assumptions about stronger loan growth, improving margins and a higher future P/E, and another around a lower Fair Value such as US$18.00 that leans on more cautious expectations for growth and valuation. As new information like news or earnings is added, these Narratives update automatically, giving you a simple way to judge whether your own fair value is above or below today’s price and whether that gap suggests adding, trimming or doing nothing.

For KeyCorp however we will make it really easy for you with previews of two leading KeyCorp Narratives:

First, here is the bull case built around analysts who see more upside from here.

Fair value used in this Narrative: US$24.55

Implied undervaluation vs the recent US$19.28 share price: about 21.5%

Revenue growth assumption: 7.9% a year

• Analysts in this camp expect net interest income to benefit from repricing tailwinds and more disciplined deposit costs. This feeds into higher earnings in their models.
• They see wealth management, commercial payments and third party commercial loan servicing as important sources of more stable and diversified fee income.
• Their valuation view rests on revenue of about US$8.8b and earnings of about US$2.3b by 2029, with a higher P/E multiple of 14.1x applied to those earnings.

Now, set that against the bear case from analysts who think the recent price already bakes in generous expectations.

Fair value used in this Narrative: US$18.00

Implied overvaluation vs the recent US$19.28 share price: about 6.6%

Revenue growth assumption: 16.4% a year

• This group expects solid growth in revenue and margins in their base case, but still applies a lower 8.8x P/E multiple to 2028 earnings, below the wider US Banks industry level they reference.
• They highlight reliance on commercial loan demand, fee income tied to capital markets and mortgage servicing, and the risk that higher costs and a tougher rate path could weigh on profitability.
• On their US$18.00 fair value, the current price sits above what they view as reasonable, even though their earnings path is not especially weak.

Both Narratives use different combinations of revenue growth, margins and P/E multiples to turn the same business into very different fair values. This is exactly why getting clear on your own assumptions matters more than any single target.

Do you think there's more to the story for KeyCorp? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.