The global financial cornerstone, represented by the banking sector, is currently receiving intense scrutiny within the market. Recent turbulent events have shaken this industry, leading to substantial impacts on the stock values of various institutions. This situation has ignited discussions about the genuine value of these establishments. A noteworthy player within this context is KeyCorp (NYSE:KEY), which is currently consolidating around robust key support levels, suggesting the emergence of a solid foundation. This article provides a technical examination of KeyCorp’s stock price to forecast its future direction and identify crucial points for long-term investors. The analysis suggests that the substantial price rebounds from the critical support indicate signs of a possible shift to the upside.
Evaluating KeyCorp’s Market Position Amid Banking Sector Fluctuations
Banks have garnered significant attention in the market recently. The industry underwent a period of turmoil that began in the first quarter and extended into April and May, significantly impacting stock valuations. However, it’s important to note that a low stock price doesn’t necessarily indicate a favorable purchase, especially when a company is grappling with multiple challenges. KeyCorp appears to be an attractive bargain. It is trading below its book value, with its stock price falling by over 50% year-to-date, reaching $8.36 as of May 2023. Unfortunately, this performance lags behind its peers, particularly compared to the KBW Nasdaq Bank Index, which tracks the 24 largest banks in the U.S. The PE ratio of 7.26 and a price-to-book value of 0.898 for KeyCorp indicates a potential undervaluation of the stock as seen in the chart below.
KeyCorp’s financial performance in the second quarter of 2023 exhibited noteworthy shifts in noninterest income and expense. Noninterest income observed a decline of $79 million when compared to the second quarter of 2022, spurred by significant reductions in investment banking and debt placement fees, service charges on deposit accounts, trust, and investment services, and corporate services income. These declines primarily stemmed from diminished merger and acquisition advisory fees, lower syndication fees, reduced overdraft, and non-sufficient funds fees, among others. Nonetheless, juxtaposed against the first quarter of 2023, there was a slight uptick in noninterest income by $1 million, propelled by a general growth across most fee categories, notably a $10 million ascent in corporate services income. On the noninterest expense front, the second quarter of 2023 saw a modest decrease of $2 million from the same period in 2022, owing mainly to a significant reduction in net occupancy expense and business services and professional fees. However, this was somewhat offset by heightened costs in computer processing, attributed to technology investments and increased personnel expenses. Notably, compared to the first quarter of 2023, noninterest expenses plummeted by a substantial $100 million, majorly due to significant cuts in personnel expenses and a decline in other costs. Despite these variances in noninterest income and expenses, KeyCorp’s underlying strengths and adaptive strategies showcase a bullish outlook for the financial institution moving forward.
A Deep Dive into Market Behavior and Essential Support Levels
The technical analysis of KeyCorp’s outlook suggests a robust bottoming pattern as the price strives to stabilize within a support range. On a long-term basis, the quarterly chart below emphasizes forming a bottoming pattern. In the wake of the 2008 financial crisis, many financial institutions, including KeyCorp, witnessed substantial declines in their stock values.
Notably, KeyCorp emerged as a double-bottom formation in 2009 at $3.01 and $3.90, with a neckline of around $6. The breakthrough of this neckline in 2012 triggered a significant price rally. Post-2009, KeyCorp’s stock value surged due to a convergence of factors. Primarily, the global economic revival and government interventions stabilized the financial sector, renewing investor faith. KeyCorp proactively took strategic steps, such as restructuring its balance sheet, divesting assets, and implementing cost-saving measures, strengthening its financial metrics and overall performance. Additionally, the bank benefited from enhanced lending practices, stricter regulations, and a renewed emphasis on core banking functions. As the broader economic landscape improved and KeyCorp showcased its adaptability to the new regulatory and economic conditions, investors acknowledged its value proposition, driving up demand for its shares and ensuing price gains.
However, this impressive surge was halted by the COVID-19 recession, causing the stock price to plummet to $6.43, which coincided with the neckline of the previous double bottom, acting as a robust support level. This downturn was attributed to the significant turmoil in the financial markets. KeyCorp faced a decline primarily due to uncertainties surrounding the pandemic’s economic repercussions, potential loan defaults, and reduced consumer and business spending. The reduction in interest rates by central banks worldwide further challenged banks’ profitability. Nevertheless, as central banks and governments injected substantial fiscal and monetary support, market confidence gradually returned. KeyCorp’s strong balance sheet, quick adaptation to shifting market dynamics, and increased digital banking activities worked in its favor following COVID-19 declines. Moreover, with the broader distribution of COVID-19 vaccines and the stabilization of economic conditions, optimism grew regarding the recovery potential of the banking industry. The conjunction of improved macroeconomic conditions and KeyCorp’s internal strategies led to a rebound from its lows and a subsequent rally to record highs.
Recently, the price once again approached the robust support area around the COVID-19 bottom, and the price movement indicates signs of forming a bottoming pattern, suggesting a possible strong market reversal.
The monthly chart further clarifies this analysis, showcasing an ascending broadening wedge pattern from the 2009 low of $3.01. This pattern has captured the market’s peaks and troughs for 14 years. The wedge’s upper boundary aligns with the market’s all-time highs, while the current price interacts with the wedge’s solid lower boundary support at $8.36. A strong bounce from this support zone, along with the manifestation of a monthly key reversal candle on the wedge’s support line, indicates a potential upward momentum. The August 2023 reversal highlights potential buying opportunities with prices at these lower levels. While the price attempts to find a foundation within its current range, some volatility is anticipated. Additionally, blue arrows on the RSI indicator emphasize strong support.
Key Action for Investors
From the above discussion, it’s evident that the market is actively working to establish a bottom. This process of bottom formation holds significant importance as it pertains to the long-term support zone. Consequently, there’s a possibility that the market could undergo further fluctuations within this range before initiating its next upward move. The provided weekly chart additionally underscores the strong buying stance, highlighted by the formation of a double bottom at $8.36 and $9.10. The current market action indicates a corrective pullback aimed at attracting new buyers. The RSI gradually increases from oversold levels, implying mounting buying pressure. On the weekly chart, the RSI is currently approaching the midpoint level of 50 and undergoing a correction lower. This dip presents a prime buying opportunity for long-term investors. It’s worth considering an investment in the stock at its present value.
A significant decrease in noninterest income, mainly from core areas like investment banking, could negatively impact profitability in the long-term. The observed drop in merger and acquisition advisory and syndication fees indicates potential vulnerabilities in these areas. Moreover, increased computer processing expenses due to technology investments suggest a shift in operational costs. While technological investments can provide long-term efficiencies, they might lead to short-term expense escalations. From a technical standpoint, the stock price appears to establish a base for its long-term support. This suggests the possibility of increased volatility and an extended consolidation period for the stock. If the price falls below $6, the long-term bullish projection could be jeopardized.
KeyCorp faces recent challenges in declining stock values and financial performance, making its position against competitors questionable. However, KeyCorp’s consistent dividends over the past 12 years and its ability to recover from past economic downturns hint at underlying strength. Technical analysis indicates that the stock price has found solid support, as evidenced by the ascending broadening wedge and the bullish monthly candle for July. The historical double bottom from 2009 reinforces the long-term outlook, suggesting a prime buying opportunity for long-term investors. Given these signals, investors might consider entering at the current price point, expecting future appreciation.