KeyCorp stock has delivered a very strong 148.9% return over the past three years, yet current checks still point to the shares trading below an estimate of intrinsic value based on the Excess Returns model and on earnings multiples. That combination has put fresh focus on whether the recent gains have fully closed the gap or if there is still a valuation cushion in the current US$22.69 share price.

• The 148.9% return over three years highlights how strongly KeyCorp has rewarded long term holders, which makes the current valuation signals more important to scrutinise.
• Middle market clients continuing to invest and the completed Clearwater Corporate Finance acquisition can support expectations for future fee and interest income. However, any disappointment in how those investments translate into earnings may weigh on what investors are willing to pay for the stock.
• KeyCorp screens undervalued on both its intrinsic value estimate and earnings multiples, yet scores only 4 out of 6 on the valuation checks, which points to a mixed picture rather than a clear bargain.

The stock's next move may depend on whether KeyCorp's current valuation discount is justified by the remaining risks or offers investors a margin of safety after such a strong three year run.

Is KeyCorp a Bargain on Excess Returns?

The Excess Returns model looks at how efficiently KeyCorp turns its equity base into earnings above the cost of capital. On this view, KeyCorp is assumed to earn Stable EPS of $2.02 per share on a Stable Book Value of $16.89 per share, with analysts expecting an Average Return on Equity of 11.96%. Against an estimated Cost of Equity of $1.24 per share, that implies an Excess Return of $0.78 per share on a Book Value of $16.14 per share.

Rolling that forward, the model produces an intrinsic value estimate of $38.20 per share compared with the current $22.69 share price. This points to the stock trading at a 40.6% discount. KeyCorp closing the Clearwater Corporate Finance acquisition helps explain why some investors may see room for additional value creation despite the recent share price strength, since the model already prices in ongoing excess returns on equity.

On this Excess Returns view, KeyCorp stock currently screens as undervalued relative to its estimated intrinsic value.

Our Excess Returns analysis suggests KeyCorp is undervalued by 40.6%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

Is KeyCorp Still Cheap on Earnings?

The P/E ratio fits KeyCorp well because earnings remain a core yardstick for banks. On this measure, KeyCorp trades on a P/E of 12.8x, which sits slightly above the Banks industry average of 12.0x but below the peer group average of 15.8x. So the market prices the stock somewhere between the broader sector and closer peers that carry higher earnings multiples.

The Fair P/E Ratio model, which blends factors such as growth expectations, margins, size and risk, points to a ratio of 14.5x for KeyCorp. That is meaningfully above the current 12.8x. The gap suggests investors are not paying the level implied by this framework, even after the strong share price move and the completed Clearwater Corporate Finance acquisition.

On the P/E lens, KeyCorp stock appears undervalued relative to the multiple suggested by its fair ratio benchmark.

The KeyCorp Narrative: What Would Justify Today's Price?

For KeyCorp, Simply Wall St Narratives on the Community page connect the valuation puzzle above with the specific assumptions on growth, margins and earnings that would need to hold for the stock to be worth materially more or materially less than today’s price. Instead of leaving you with a single output from a model or ratio, they spell out the underlying future that figure depends on so you can monitor whether reality tracks that path over time.

Community views on KeyCorp sit far apart, with one camp pointing to upside and another seeing the stock as roughly priced in.

Bull case: 13% undervalued

"Expansion in the wealth management and commercial payments sectors, marked by record production volumes and significant client growth, is poised to drive noninterest income upwards..."

Bear case: roughly fairly valued

"Accelerating loan remix from low yielding consumer mortgages into relationship C&I heightens dependence on middle market and institutional borrowers at a time when utilization remains subdued..."

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

The Bottom Line

KeyCorp screens undervalued on both the Excess Returns intrinsic value estimate and on its earnings multiple, which point in the same direction despite only a mixed overall valuation score. That suggests the discount is real, but not without conditions. The crux from here is whether KeyCorp can convert its middle market focus and Clearwater Corporate Finance acquisition into earnings that support those excess returns without slipping on credit or growth execution. How that trade off plays out will likely decide whether the current discount proves to be a margin of safety or a sign the market is already pricing in the key risks.

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.