UPDATE: Compass Point Reiterates On KeyCorp On Emerging Asset Sensitivity

In a report published Tuesday, Compass Point analyst Kevin Barker reiterated a Buy rating on KeyCorp (NYSE: KEY), but lowered the price target from $16.50 to $16.00.

In the report, Compass Point noted, “The company reported an operating earnings beat this quarter primarily due to higher principal trading and investment banking revenue. The higher revenue was offset by slightly higher expenses, but the core operating EPS still beat consensus estimates. While some may point to the principal trading revenue as unsustainable, we already have little expectations for revenue growth through 2015. However, we do expect the company to remain diligent with managing its expense base and continue to return an outsized amount of capital to shareholders via buybacks and dividend.

"Additionally, the company screens as being one of the more asset sensitive banks in our coverage universe if it were to let its swap portfolio roll-off (which we incorporate in our NII estimates). Over time, we would expect increasing asset sensitivity to lead to a higher earnings multiple for the stock and incorporate this dynamic into our valuation methodology. Bottom line, KEY remains one of the best positioned banks to take advantage of a pick-up in economic activity/rates, while returning large amounts of capital to shareholders in the meantime. We are adjusting our FY14E operating EPS estimate to $1.03 from $1.07 and FY15E operating EPS to $1.10 from $1.12 primarily due to slightly lower fee income. Due to the slightly lower FY15 estimates, our price target dropped $0.50/share.”

KeyCorp closed on Monday at $13.68.