Analyst David A. George from Robert W. Baird recommended shares of KeyCorp (ticker: KEY):
a. downside risk is limited, and KeyCorp’s
reserve/capital levels should enable the company to absorb high credit
costs during this cycle.
b. Valuation also appears attractive, as the stock
trades at only 80% of estimated tangible book despite ownership of
Victory Capital, which we think is worth $1.25 billion-$1.75 billion.
c. KeyCorp is aggressively dealing with its
near-term credit challenges in California and Florida through the
disposition/write-down of its construction/development portfolio in
these tough real-estate markets, and the company’s pre-provision
earnings power and capital levels will be enough to weather the current
credit cycle in our opinion.
d. The valuation of the stock is extremely
attractive, as it trades at only 80% of estimated tangible book value,
less than 8 times the analyst’s 2009 earnings-per-share estimate, and
just 2.9 times estimated next 12 months pretax, pre-provision earnings.
e. Following the company’s capital raise and
dividend cut, KeyCorp’s capital and reserve levels are adequate in our
opinion for the company to absorb higher credit costs as we move
through the current credit cycle.
f. 12-month price target of $16
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