Market Overview

Deutsche Bank Downgrades Keycorp, Regions Financial

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  • Shares of KeyCorp (NYSE: KEY) and Regions Financial Corp (NYSE: RF) have surged 8 percent since November 2.
  • Deutsche Bank’s Matt O'Connor downgraded the ratings on both the companies from Buy to Hold, while reducing the price target for KeyCorp from $16 to $14.
  • Following the upturn in share prices, the stocks reflect several rate increases in 2016 and it may be better to focus on high quality super regionals as well as turnaround stories, O'Connor said.

Bank stocks have gained 5 percent over the last 5 trading days and are up 6 percent since the day prior to the Fed meeting in September. Analyst Matt O'Connor believes that they now reflect a rate hike in December or January.

Following the share price appreciations, it makes sense to reduce rate exposure, since the economy may not be robust enough to support several rate hikes in 2016. “We continue to prefer high quality super regionals as well as turnaround stories,” O'Connor wrote.

KeyCorp’s shares are almost flat as compared to Tuesday’s close last week. “This seems like the cleanest base pre the First Niagara/FNFG deal as KEY shares rallied on Wed before selling off Thurs/Fri on the deal,” the Deutsche Bank report stated.

Lag in KeyCorp Shares Warranted

Although KeyCorp’s shares have lagged peers by 6 percent last week, O'Connor believes that this is warranted, with there being limited upside until the deal closes.

There are risks associated with the deal with First Niagara Financial Group Inc. (NASDAQ: FNFG), like “disruption from large cost take outs, potential unknown regulatory/control challenges and more tangible book dilution (of 12%) than we would have preferred given the lower quality of the FNFG franchise.” O'Connor commented.

Prefer Citizens Financial

Regions Financial’s shares have rallied 16 percent since August 25 lows, versus a 10 percent gain for the S&P Comm Bank Index during the same time.

O'Connor mentioned that there is more upside in Citizens Financial Group Inc (NYSE: CFG), since the latter is “earlier in its turnaround,” trades at a 10 percent discount to Regions Financial, has less energy-related credit risk and has lower exposure to continued pressures in NSF/overdraft.

Latest Ratings for KEY

DateFirmActionFromTo
Jan 2021Morgan StanleyMaintainsEqual-Weight
Dec 2020Morgan StanleyMaintainsEqual-Weight
Nov 2020RBC CapitalMaintainsOutperform

View More Analyst Ratings for KEY
View the Latest Analyst Ratings

 

Related Articles (KEY + RF)

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Posted-In: Deutsche Bank Matt O'ConnorAnalyst Color Downgrades Price Target Analyst Ratings

Latest Ratings

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BLKDeutsche BankMaintains838.0
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